Forex Scams 101 l Brenda Hamilton, Attorney
The Commodity Futures Trading Commission (CFTC) and the North American Securities Administrators Association (NASAA) warn that off-exchange forex trading is at best extremely risky, and at worst, outright fraud. Forex scams are on the rise and a hot new target for the Justice Department and state regulators. Forex scammers often operate multiple businesses and it is common for these fraudsters to operate other types of scams domestically and internationally including boiler rooms, pay day loan stores, credit repair services and penny stock manipulation schemes.
Forex Investment Contracts
Forex contracts involve the right to buy or sell a certain amount of a foreign currency at a fixed price in U.S. dollars. Profits or losses accrue as the exchange rate of that currency fluctuates on the open market. It is extremely rare that individual traders actually see the foreign currency.
Instead, they typically close out their buy or sell commitments and calculate net gains or losses based on price changes in that currency relative to the dollar over time.
The Forex Markets
Forex markets are among the most active markets in the world in terms of dollar volume. The participants include large banks, multinational corporations, governments, and speculators. Individual traders comprise a very small part of this market. Because of the volatility in the price of foreign currency, losses can accrue very rapidly, wiping out an investor’s down payment in short order.
How Forex Scams Work
Forex scams attract customers with sophisticated-sounding offers placed in newspaper advertisements, radio promotions, or on Internet sites. Promoters often lure investors with the concept of leverage: the right to “control” a large amount of foreign currency with an initial payment representing only a fraction of the total cost. Coupled with predictions about supposedly inevitable increases in currency prices, these contracts are said to offer huge returns over a short time, with little or no downside risk.
In a typical case, investors may be assured of reaping tens of thousands of dollars in just a few weeks or months, with an initial investment of only $5,000. Often, the investor’s money is never actually placed in the market through a legitimate dealer, but simply diverted—stolen— for the personal benefit of the scam artists.
Investors may be solicited via internet and by phone rooms set up by the scammers. Many times groups operating forex scams are participants in a wide range of frauds and money laundering activity. It is not uncommon to find scam forex operators also involved in penny stocks or check cashing stores.
Regulation of the Forex Markets
The CFTC is the Federal agency with the primary responsibility for overseeing the commodities markets, including foreign currency trading. Many state securities regulators also have the right under their state laws to take action against illegal commodities investments. Sometimes the Justice Department, CFTC and the states work together on cases
Common sense goes a long way when it comes to investing. Get-rich-quick schemes, including those involving foreign currency trading, tend to be frauds.
Investors solicited by a company that claims to trade foreign currencies should watch for the following red flags:
► Forex websites that do not list the names of principals, managers or employees
►Promises that sound too good to be true: “You can make six figure profits within a year; forex investments are very low risk; You can double your money.”
► Unsolicited phone calls offering investments, especially those from out-of-state salespersons or companies that are unfamiliar.
► Investors should be extremely cautious particularly if they acquired a large sum of cash recently and are looking for an investment vehicle. In particular, retirees with access to their retirement funds may be attractive targets for fraudulent operators.
► High-pressure efforts to convince investors to send or transfer cash immediately to the firm, via overnight delivery or the Internet.
Even when purchased through the most reputable dealer, forex investments are extremely risky and investors should consider whether he or she can afford to lose their entire investment.
Investors should make sure that anyone offering a forex investment is properly licensed and has a reputable business history. The public can obtain information about any firm or individual registered with the CFTC, including any actions taken against a registrant, through the National Futures Association (NFA) Background Affiliation Status Information Center (BASIC), available on the NFA website here. Investors may also find out if someone is registered by calling the National Futures Association at 1-800-676-4632.
The CFTC’s Division of Enforcement has established a toll-free telephone number to assist members of the public in reporting possible violations of the commodities laws. Call 866-FON-CFTC (866-366-2382). In addition, whistleblowers can report suspicious activities or information to the CFTC .
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The securities regulator in your state or province also may be able to help. Visit NASAA’s website at www.nasaa.org to contact your state or provincial securities regulator.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855