The US Commodity Futures Trading Commission (CFTC) has charged two individuals with fraud related to a binary options investment pool. Two men, one from Steubenville, Ohio named Thomas Caniff and another one from Rotterdam in the Netherlands, named Arie Bos founded a company called Berkley Capital Management, LLC.

The Wyoming-based firm with offices in Ohio and the Netherlands operated as a Delaware limited partnership. It held offices in Wintersville, Ohio. Caniff and Bos are alleged to have fraudulently solicited over $4.8 million from 62 investors. The duo claimed that they are going to trade binary options at the North American Derivatives Exchange (NADEX).

In reality, only part of the funds was used at NADEX with at least $2.3 million being misappropriated. The operations of Caniff and Bos and their company left a shortfall of over $2.5 million which they allegedly owe to participants.

Berkley Capital Management

The company which the latest CFTC binary options investigation is targeting called Berkley Capital Management started operating in January 2016. Caniff and Bos solicited investors in the Netherlands and the U.S. claiming that they are presenting an opportunity to trade binary options at NADEX through two pools operated by the firm.

Thomas Caniff tampered with the application he made to open one of the pool accounts at NADEX. Had he answered truthfully to all questions which the binary options exchange is asking in the form, the company would have refused to open the account.

While the size of deposits into the pool amounted to $4.8 million, Caniff only sent $85,000 of the funds to NADEX. Instead, he used approximately $2.3 million to repay other participants in the pool and paid himself and Bos $2.3 million in management fees. The move left a $2.5 million gap in the pool.

The CFTC’s complaint alleges that Caniff sent Bos false reports of the pools’ daily trading activity at NADEX. In turn, the Dutch citizen used Caniff’s reports to disseminate incorrect information that he to prospective participants in the Netherlands and the US in order to attract more money into the investment pools of Berkley Capital Management.

Paper Profits

By the end of 2016 statements sent to participants in the pools stated that the balance has been increased to $5.5 million. In reality, at the time the liquid assets of the firm held in trading and bank accounts a total of $277,961.89.

The profits reported to clients were allegedly realized while the NADEX account had not even been funded. The CFTC seeks full restitution to defrauded pool participants, disgorgement of ill-gotten gains, a civil monetary penalty, permanent registration and trading bans, and a permanent injunction against further violations of the Commodity Exchange Act and CFTC Regulations.

Caniff was arrested on May 2 in relation to a connected case pending in the Northern District of Illinois.

Commenting on the scheme, the CFTC’s Director of Enforcement, James McDonald, explained:  “As this case shows, the CFTC continues its commitment to rooting out fraud in our markets. As alleged here, the defendants perpetrated their fraud by lying to the exchange, lying to customers, and pocketing millions of dollars in customer funds, instead of trading them for customers as promised.”

The court has frozen assets of the duo and their company. A hearing on the CFTC’s Motion for a Preliminary Injunction is pending on May 22, 2019. The case is yet another demonstration of the persisting fraud practices related to binary options. The product has a very bad name in the industry and not for nothing.