Watchdogs target binary options scams

Regulators say schemes largely fraudulent

TORONTO • Provincial market watchdogs are joining forces to try to shut down the mechanisms used to entice investors into binary options trading schemes, a growing problem based on a model regulators say is largely fraudulent.

Despite warnings from securities regulators over the past year that no one is registered to offer binary options investing in Canada, schemes promoting the “get rich quick” investments continue to proliferate and cause losses for a growing number of investors, according to the Canadian Securities Administrators, an umbrella group for provincial regulators.

There were 800 complaints last year across Canada, according to Frédéric Pérodeau, senior director of investigations at Quebec’s Autorité des Marchés Financiers and chair of the CSA’s enforcement committee.

The crackdown will include trying to persuade social media websites and online advertising vehicles to decline ads and other promotions for binary options trading, he said. A task force set up by CSA is also targeting mobile device companies because investors are downloading apps to participate in binary options trading,

“We want them to understand there is an issue and we want them to be part of the solution,” said Pérodeau, adding that there are more than 100 apps on offer for binary options trading.

Binary options are very short-term bets — sometimes minutes — on the performance of an underlying asset, such as a stock index, currency, or share. When the investment period is up, the investor receives a predetermined payout or loses the entire amount.

But regulators say the overwhelming majority of binary options sites are “rigged to lure in victims with small early returns.” In many cases, the CSA says, no actual trading takes place and “the entire interaction takes place for the purpose of stealing money.”

The schemes rely on websites and social media ads to market their product, which makes it difficult to determine their location, say regulators, who are also reaching out to financial institutions and credit card companies to seek their help in cutting off the scammers.

Pérodeau say 95 per cent of the transactions are done using cards and the money is often transferred offshore.

“We’re trying to cut all the channels they’re using, targeting potential victims or getting the money out of Canada,” he said.

The task force is also creating a system to share and track fraudulent activity across the country, and will co-ordinate the regulators’ efforts with international organizations and governments.

“We are seeing families of every demographic being affected by financial losses due to binary options trading,” said Jason Roy, a senior investigator with the Manitoba Securities Commission and chair of the CSA’s task force.

Regulators say the schemes typically follow a similar pattern. After early wins, an investor starts to invest larger sums of money. That’s when the losses begin. Unauthorized credit card withdrawals are sometimes made and there can be requests to send money offshore to an unregistered firm.

Once a victim has lost their money, “it is almost impossible to recoup their losses,” according to the CSA.

The crackdown announced Thursday comes a year after the regulatory umbrella group raised a red flag about the proliferation of websites promoting offshore binary options trading platforms to Canadian investors.

Separately, last October, the British Columbia Securities Commission issued a warning to investors in that province about an unregistered binary options trading platform called Millionaires Blueprint.

In January of this year, the Ontario Securities Commission warned investors that binary options were being promoted using unauthorized pictures of Conservative Party leadership candidate Kevin O’Leary without his permission.

Representatives for O’Leary, who is perhaps best known for his personalitydriven business and entertainment shows on television including Dragons’ Den and Shark Tank, told regulators he was not promoting or otherwise associated with any binary options trading platforms. Binary options scams use websites and social media ads.