Scams related to binary options trading have been on the rise, particularly during the COVID-19 pandemic. Whether you’re an experienced trader or are just starting to build your investment portfolio, you must carefully weigh the pros and cons of investing in binary options.
The volatile nature of binary options makes them an inherently risky investment. Unless you’re well-versed with the nitty-gritty of the national and global economy, making money from binary options is a herculean task. It isn’t surprising that this form of trading is considered illegal in many countries.
While binary options are legal in the U.S., they’re regulated by the CFTC (Commodity Futures Trading Commission) and SEC (Securities and Exchange Commission). People can also contact new-age service providers like PayBack LTD for binary options scam recovery, which makes trading slightly safer.
But as an investor, you must be familiar with the warning signs of a potential binary options scam. The last thing you want is to be duped out of your life savings when you’re about to retire. In this blog, we’ll delve deeper into two recent binary options scams and understand how to spot such frauds early on.
SEC’s Indictment of Spot Option
In April 2021, the SEC filed a lawsuit against Spot Option Tech House Ltd., an Israel-based binary options company, as well as its top executives, Pini Peter and Ran Amiran. The lawsuit stated that the company had duped thousands of investors in the U.S., with many of them being retirees.
The company, which operated between April 2012 and August 2017, caused the investors to lose hundreds of thousands of dollars worth of life savings. Also, the company’s trading and payout terms were formulated to guarantee investor losses.
Apart from civil monetary penalties, the SEC sought disgorgement of the company’s gains, as well as an injunction on its operations
Ban on Three Binary Options Operators in California
The Spot Option lawsuit was followed by another noteworthy judgment by a district court in California in May 2021. The judgment barred three binary options operators, Kai Christian Petersen, Gil Beserglik, and Raz Beserglik, from selling binary options and other securities on the internet.
Also, it imposed hefty penalties and disgorgement on the defendants. Operating between 2014 and 2017, the brokers scammed retail investors in the U.S. and abroad, causing them to lose millions of dollars. Many investors were retirees who lost their entire life savings due to the scam.
They operated under three affiliate brands, namely Bloombex Option, Morton Finance, and Starling Capital. The judgment was the result of a complaint filed by the SEC on September 26, 2019. While the defendants didn’t admit or deny SEC’s allegations, they consented to the court’s final judgment.
What These Scams Teach Us About Binary Options Trading
First things first – binary options trading is always associated with an intrinsic risk factor. Much like gambling, you place your bet on whether an asset will reach a particular value before it expires.
The fundamentally risky nature of binary options makes it easy for fraudsters to get away with scams. But that doesn’t mean you should steer clear of this form of trading. Here are a few important lessons you should learn from the aforementioned binary options scams:
Verify Your Brokers
This one’s a no-brainer for any type of investment. But it’s all the more crucial for binary options trading considering the volatility and risk associated with it. As a ground rule, before signing up on any binary options trading platform, you should vet the broker’s credentials and experience.
Start by finding out whether they’re registered with regulatory bodies, such as the SEC and CFTC. In both the scams mentioned above, it was found that the brokers ran their operations illegally in the U.S.
Even if a broker tries to woo you with promises of quick and guaranteed returns, make sure you verify their credibility. A genuine operator won’t hesitate to provide you with their license and registration details.
Check the Payout Terms
One of the biggest factors that helped the Spot Options executives rake in millions while their investors lost money was the dubious payout terms. The operators had set the payout terms in such a way that most investors would lose a majority of their investments within the first five months.
That’s why it is always a good idea to carefully analyze the payout terms of a trading platform before investing. Watch out for potential red flags, such as lock-in periods on investments, and attractive bonuses for locking withdrawals.
It’s crucial considering that most binary options brokers earn profits from the investors’ losses. If an operator tries to tell you otherwise, they aren’t likely worth their salt.
Avoid International Brokers
In both the aforementioned scams, the companies were operating from overseas. While Spot Option was based in Israel, Petersen and the Beserglik’s ran their operations from boiler rooms in Germany and Israel.
When it comes to binary options trading, it’s wiser to choose brokers who are based in your country of residence. In such cases, the broker would have no other choice but to comply with the guidelines and laws set by financial regulators in the country.
Should You Invest in Binary Options?
There’s no one-size-fits-all answer to this question. The key is to assess your financial situation and identify how much you can afford to lose, in case your investments don’t generate the desired returns. Also, make it a point to work with genuine, licensed, and transparent brokers.