U.S. regulators charge Banc de Binary

Binary options are contracts whose payouts are all, or nothing, depending on whether an underlying asset, such as a company’s stock price, increases or decreases. The SEC and the CFTC issued a joint investor alert to warn investors about fraudulent promotional schemes involving binary options and binary options trading platforms. They say that much of the binary options market operates through online trading platforms that are not necessarily complying with U.S. regulatory requirements and may be engaging in illegal activity.

“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.”

Indeed, the SEC alleges that Banc de Binary has been offering and selling binary options to investors across the U.S. without first registering the securities as required under the federal securities laws. It says that the company has solicited U.S customers by advertising through YouTube videos, spam e-mails, and other online advertising; that its representatives have communicated with investors directly; and that the firm has been acting as a broker in these securities without registering as a broker.

Separately, the CFTC charged the company with violating its off-exchange options trading ban and operating as an unregistered futures commission merchant. It also alleges that the company did not limit its options offerings to eligible participants, allowing U.S. customers to trade without requiring any information about their trading history or net worth.

The allegations have not been proven in either case. 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 is also seeking civil monetary penalties, an injunction preventing Banc de Binary from engaging in certain commodity options activity with U.S. customers, and other relief, including restitution, disgorgement, and rescission.

“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,” said Andrew Ceresney, co-director of the SEC’s Division of Enforcement. “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.”