The Regulators Are Fighting A New Wave Of Fraud

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The Regulators Are Fighting A New Wave Of Fraud

Regulation Is Helping Like Bad Medicine

Regulation, like bad medicine, is helping the binary options industry. It is making it harder for the scammers to operate but at the same time may kill the patient. The good news is that there are still jurisdictions friendly to binary options trading, the bad news is the scams and fraud have turned their focus in that direction.

In the latest news the Belize IFSC, a regulatory agency friendly to binary options regulation, has issued a warning against Matrix-Option operating the website Matrixoption.com. The IFSC says the broker is operating illegally and using a forged license. The warning specifically notes the license and regulation numbers cited by Matrix-Option as well as a link to an alleged license that the IFSC says are complete forgeries. We are not surprised, shady brokers have used this ploy before with the IFSC and other regulators. The one that pops to mind first is Banc De Binary.

The IFSC is also warning against a cryptocurrency operation claiming to hold an IFSC business license. The firm, BTCHome Mining, claims to operate a licensed forex exchange with the added bonus of cryptocurrency mining. Traders can reinvest their profits into a cryptocurrency mining account (fraud) to better their returns. The IFSC says operations like this, claiming profits and returns that seem too good to be true, usually are.

Polish regulators stepped into the binary options fray when they raided the offices of a call center operating in their country. The regulator says Amplio Investments has been offering and soliciting investment advice without a license, a felony in their country. The raid resulted in the arrest of 36 employees including 20 top officials.

The Polish regulator has also issued a warning against ExBino. ExBino is an off-shore based broker operating without a license in Poland or anywhere else, and using the same old high-pressure tactics that have plagued binary options since the very beginning. Poland’s Financial Services Authority, the KNF, cautions the public to avoid leveraged CFD’s, forex and binary options because most people lose money.

In some good news the Tel Aviv court has issued a ruling in favor of a woman who lost her life savings to binary options. She claims she lost nearly $140,000 to a scam run by Manx Online Trading. The plaintiffs claim the defendant knew the risks involved but the judge did not believe them. The defendant was awarded 60% of her losses due to bad investment advice. The judge did point out that the defendant was not without blame, having sought a higher channel of return for investments in her portfolio.

Banks, regulators move to protect customers from wave of coronavirus scams in UK, U.S.

LONDON (Reuters) – UK banks are stepping up fraud prevention measures to protect customers from scammers eager to exploit the coronavirus pandemic with a whole range of new tricks, including fake sales of medical supplies and bogus government relief schemes.

With British households effectively on lockdown, some banks said customers had already been caught out by fraudsters posing as banks, government and even health service providers to persuade victims to hand over passwords or other sensitive data.

Fraud is also on the rise in the United States, where regulators have warned about investment and data theft scams.

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In the UK, Barclays ( BARC.L ), HSBC ( HSBA.L ), Lloyds Banking Group ( LLOY.L ) and Royal Bank of Scotland ( RBS.L ) have launched social media campaigns to flag ploys. Metro Bank ( MTRO.L ) said its fraud team was still operating a 24-hour, seven-day service to help affected customers.

The banks said scammers were using a range of methods to prey on people. Common “phishing” emails, authorised bank transfers and schemes involving fake buying or selling of goods or services are on the rise, alongside more sophisticated “payment diversion” frauds, designed to coax businesses to part with large sums of cash.

One such example flagged to Reuters called on business owners to make a 25,000 pounds ($29,370) payment to a fake government support initiative called “The Central Employers Scheme” set up to cover sick pay during the outbreak.

A UK banking source said another victim made a significant payment to a “COVOID Bond”, also fraudulently linked to the UK government.

The banks said such typographical errors were often made deliberately by scammers to lend authenticity to the request, particularly if the sender was posing as a chief executive or colleague demanding the recipient took quick action.

The UK banking source said another customer was persuaded via email to send a cross-border payment to a scam account after fraudsters said the legitimate account had been “frozen by the Greek Government.”

“This virus won’t stop bad actors and fraudsters, if anything, it will encourage them. I am much more nervous about this today than ever,” Richard Meddings, chairman of retail bank TSB, told Reuters.

“People will be at home, receiving phone calls and texts from people who claim to be their banks, asking them about cancelled events and travel plans and offering refunds. Fraud can only go up under these kinds of circumstances,” he said.

Figures published earlier this month by trade body UK Finance showed around a quarter of the 456 million pounds ($535.2 million) of authorised bank transfer fraud was returned to victims across the industry last year. TSB, the only UK bank to offer a Fraud Refund Guarantee, has returned 99% of losses to its customers since April.

In the United States, the U.S. Federal Deposit Insurance Corporation, the regulator which insures customer deposits, last week said fraudsters were exploiting popular anxiety and confusion to steal personal data, such as birthdays and Social Security numbers, through texts and social media.

Many U.S. banks have cut branch hours or are pushing customers to use online banking to mitigate the spread of the coronavirus. That has created opportunities for scammers who, impersonating FDIC officials, have urged depositors to hand over their data, saying their current lender is about to collapse.

“During these unprecedented times consumers may receive false information regarding the security of their deposits or their ability to access cash,” the FDIC said.

BANK WARNINGS

British banks said they are working hard to get the word out.

“We have increased our warning messages across all of our communication channels and as the situation evolves we continue to review and update these warnings,” an RBS spokeswoman said.

“We also ask that customers spread the word amongst family and friends, especially the more vulnerable in our society.”

A tweet from Lloyds warning customers of the dangers had over 1 million views by Sunday evening, in a sign of the level of public concern.

Action Fraud, the national fraud and cyber crime reporting centre, said the majority of reports it had received in recent days related to online shopping scams where people have ordered protective face masks and hand sanitiser which have never arrived.

“The advice is simple, think very carefully before you hand over your money, and don’t give out your personal details unless you are sure who you are dealing with,” said Graeme Biggar, director general of the National Economic Crime Centre said.

In the United States, lenders including United Bank, Citizens Bank, and Fifth Third Bank are alerting customers to fraud-related schemes and encouraging them to protect their personal information. Northwest Bank is also providing customers with information and tools to help spot tactics aimed at obtaining customer financial information.

Some European banks are also concerned their workforces could fall foul of fraudsters.

A staff memo sent by Italy’s UniCredit ( CRDI.MI ) earlier this week warned of “ongoing campaigns” against the bank’s IT security and urged staff to be extra vigilant of incoming email, SMS and WhatsApp messages that referred to coronavirus.

“Customer data safety and security is UniCredit’s top priority. As always, we continue to take and apply all the necessary measures to protect our customers and systems,” the bank said.

Additional reporting by Valentina Za in Milan and Clara Denina in London and Katanga Johnson in DC; editing by Jane Merriman and Jonathan Oatis

Speculative Bets Prove Risky as Savers Chase Payoff

Regulators across the country are confronting a wave of investor fraud that is saddling retirement savers with steep losses on complex products that until a few years ago were pitched only to the most sophisticated investors.

The victims are among the millions of Americans whose mutual funds and stock portfolios plummeted in the wake of the financial crisis, and who started searching for ways to make better returns than those being offered by bank deposits and government bonds with minuscule interest rates.

Tens of thousands of them put money into speculative bets promoted by aggressive financial advisers. The investments include private loans to young companies like television production firms and shares in bundles of commercial real estate properties.

Those alternative investments have now had time to go sour in big numbers, state and federal securities regulators say, and are making up a majority of complaints and prosecutions.

“Since the crisis, we’ve seen more and more people reaching out into different types of exotic investments that are a big concern to us,” said William F. Galvin, the Massachusetts secretary of the commonwealth.

Last Wednesday, Mr. Galvin’s office ordered one of the nation’s largest brokerage firms, LPL Financial, to pay $2.5 million for improperly selling the real estate bundles, known as nontraded REITs, or real estate investment trusts, to hundreds of state residents from 2006 to 2009, in some cases overloading clients’ accounts with them.

LPL said it agreed, as part of the settlement, to reform its process for selling such alternative investments.

There are few good statistics on the extent of the problem nationally. But cases are mounting in the offices of regulators like A. Heath Abshure, the securities commissioner in Arkansas, where a majority of the 66 open securities cases involve complex investments sold to less sophisticated investors looking for a steady return.

J. Bradley Bennett, chief of enforcement at the Financial Industry Regulatory Authority, or Finra, Wall Street’s self-regulatory group, said that for the last two years, 10 staff members have looked at the “proliferation of these products, to understand how they are being sold.”

“It’s got our attention,” he said. “We recognize the trends.”

Brokers promoting bad investments to unsophisticated investors is nothing new. But while the easy prey used to be people looking to get rich quick, the pool has widened to include savers looking for ways to earn the kind of income once reliably available from traditional investments.

Regulators are warning investors that the dangers are unlikely to recede, given the Federal Reserve’s pledge to keep interest rates near zero and the push among financial firms to earn more revenue from so-called alternative investments marketed to retail investors. Brokers are eager to sell these investments because they often bring in higher commissions than standard mutual funds and stocks.

The money that retail investors have in alternative investments in the United States, ranging from baskets of commodities to mutual funds that employ sophisticated trading, more than doubled from 2008 to 2020, to $712 billion from $312 billion, according to McKinsey & Company. Many of the products hold out the promise of higher returns while ostensibly being immune to the volatility of stock markets.

The phenomenon of investors’ actively moving money in pursuit of higher interest rates, known as chasing yield, is reverberating through the economy. Jeremy C. Stein, a Federal Reserve governor, said in a speech on Thursday that he worried that investors desperate for yield could be creating a bubble in widely available investments like junk bonds.

Mary Beck, a furniture business consultant in Pasadena, Calif., said that in 2008, as the stock investments in her husband’s I.R.A. began to fall quickly, the couple moved $470,000 to a new product recommended by their broker.

While the offering was unfamiliar — part ownership in a fleet of luxury cars — Ms. Beck bought the pitch because her broker had been around for years, and the product offered what seemed to be a modest annual interest rate of 7 percent.

“We knew that 12 percent wasn’t realistic, but 7 percent seemed realistic,” Ms. Beck said. “To us, it was a very conservative way to ensure that we’d increase our savings.”

Soon after they stopped receiving interest payments, the Becks lost their money when the venture went bankrupt in 2020. Ms. Beck and her husband have been reconfiguring their retirement and are planning to work longer.

Her lawyer, Andrew Stoltmann, is representing 10 of the broker’s customers, who have filed claims with the financial industry group, saying that the broker used their money on his own “exotic, opulent” lifestyle.

There is no agreed-upon list of the financial products that have caused problems for yield-chasing investors, but regulators say certain ones come up particularly often. Private placements, investments in largely unproven private companies, have been on the list of top enforcement concerns published by the national organization of state securities regulators every year since 2007.

Private placements are supposed to be available only to wealthy, sophisticated investors, but several loopholes, including relaxed procedures for verifying wealth, have allowed them to end up in the portfolios of less sophisticated retirement savers.

Gary Spiegel, 54, a woodworker in upstate New York, was persuaded to buy into three private placements after he grew tired of the volatile stock market and withdrew all of his money in March 2020. Much of that money, $100,000, went into a company that was supposed to produce a bilingual television show, “Hacienda Heights,” while paying a reliable 10 percent interest rate.

“The banks weren’t giving interest, and I was getting turned off by stocks,” said Mr. Spiegel, who says he ended up losing $318,000. He settled a legal dispute with his broker this month, just before an arbitration hearing.

Mr. Spiegel’s lawyer, Stuart D. Meissner, said that before the financial crisis, he never saw a client with a private placement case, but that they are now commonplace.

REITs have been one of the most heavily sold products because there are few rules about who can buy them. Popular for years, they used to come primarily in funds that could be traded on public exchanges. The hot new version — the type that got LPL Financial in trouble in Massachusetts — can be bought and sold only in private transactions.

The outstanding amount of such nontraded REITs grew to $65 billion last year, from $43 billion in 2009, according to Direct Investments Spectrum. The private nature of these investments has been advertised as a good thing, because it means they are less likely to move up and down with the stock market. But it has also made it hard for investors to value their holdings or to get out when they need the money.

In addition to the Massachusetts case, the Financial Industry Regulatory Authority issued a $14 million fine in October against a big purveyor of nontraded REITs in the New York area, David Lerner Associates.

The group warned in January about one of the newest products being sold to retail investors: so-called business development companies, which hold the debt of small companies. Money in such investments grew to $4.5 billion last year from $8 million in 2008, according to MTS Research Advisors.

John Morgan, the securities commissioner in Texas, said that based on the complaints coming into his office, the appeal of alternative products appeared to be undimmed. “The people that we talk to are just trying to find a stable source of income,” he said. “The promoters have found a sweet spot here.”

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