The United States is well renowned for its commitment to consumer protection, and the latest manifestation of this is in yesterday’s announcement by the Commodity Futures Trading Commission that it intends to pursue binary options broker Banc de Binary for two transgressions of United States law.
Subsequent to the CFTC’s decision to file suit against Banc de Binary, the regulator posted a very concise warning on its website aimed at bringing to the attention of American citizens the potential caveats of trading with off-exchange binary options firms, which is illegal in the United States.
A Further US Regulator Follows Suit
Today, the Securities and Exchange Commission (SEC), responsible for regulating and overseeing the activities of exchanges and venues in the United States followed suit, issuing a further warning to potential investors on what it considers risks associated with off-exchange binary options products, and has also posted its intention to prosecute Banc de Binary for the same transgression as cited by the CFTC.
In yesterday’s announcement, the CFTC intends to bring charges against Banc de Binary for not only offering off-exchange binary options to American customers, but also for operating as an unlicensed Futures Commission Merchant (FCM), also an offence in the United States.
Speaking on the SEC’s decision to bring this case and to raise this subject to US customers, Andrew J Ceresney, who in April this year was appointed Co-Director of the SEC’s Division of Enforcement announced today: “Just because foreign companies can more easily communicate with American investors doesn’t mean they should skirt our longstanding laws that protect investors by requiring registration of securities”.
On citing Banc de Binary, Mr Ceresney issued the following statement: “Banc de Binary contacted U.S. investors through the Internet and YouTube but completely disregarded the U.S. securities laws’ registration requirements. We will aggressively combat such conduct no matter where it originates.”
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According to the SEC’s complaint against Banc de Binary filed in federal court in Nevada, the company began offering and selling binary options to U.S. investors in 2010. Banc de Binary induced investors to create accounts with the company, deposit money into those accounts, and then purchase binary options whose underlying assets include stock and stock indices. Banc de Binary’s solicitation of U.S. investors has been quite successful and attracted some customers with very modest means.
For example, one investor had a monthly income of $300 and a net worth of less than $25,000, and another customer was encouraged to deposit additional funds into his Banc de Binary trading account even after he informed the Banc de Binary representative that he was unemployed with less than $1,000 in his checking account.
The SEC’s complaint seeks disgorgement plus prejudgment interest, financial penalties, and preliminary and permanent injunctions against Banc de Binary among other relief. The CFTC today announced a parallel action against Banc de Binary. The SEC’s investigation was conducted by Leslie A. Hakala and C. Dabney O’Riordan of the Los Angeles Regional Office. The SEC’s litigation will be led by John W. Berry and Ms. Hakala. The SEC appreciates the assistance of the CFTC in this matter.
The Investor Alert on binary options was jointly issued by the SEC’s Office of Investor Education and Advocacy and the CFTC’s Office of Consumer Outreach. The bulletin discusses in detail the potential risks of investing in binary options, and warns investors that they may not have the full safeguards of the federal securities and commodities laws if they purchase unregistered binary options that are not subject to the oversight of U.S. regulators.
“Investors should be aware of the potential for fraud in this area as well as of the reality that they can lose their entire investment,” said Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy. “We strongly encourage investors to check the background of brokers and advisers and trading platforms before making a decision to invest. If investors can’t obtain simple background information such as whether the financial professional is registered with the SEC or FINRA, then they should be extremely wary.”
In the United States, it is perfectly legal to trade binary options, as long as they are exchange based, as in the case of the North American Derivatives Exchange (NADEX), which provides a trading environment in which trades are executed via an exchange rather than clients ‘betting’ against the binary options firm itself.
Consumer protection was spearheaded in North America by Ralph Nader’s 1965 book “Unsafe at Any Speed”. The US regulators appear to view these particular products as unsafe at any price.
Forex Magnates intends to report on this matter in detail to provide the industry’s perspective.