Do-it-yourself investors may have run across investing websites that promise huge returns if you trade something called “binary options.” They make it seem like a pretty easy way to make a quick buck. All you have to do to open an account is to give them some personal information to “confirm your identity” for a credit check and some credit card details. Should you take the plunge? Absolutely not! Here’s why.
Binary options trading platforms are almost certainly an investment scam. The scam is the most recent widely reported financial fraud making the rounds – with quite some success at bilking money from the unwary. It is basically a variation of the eternal “get-rich-quick” scheme, which has been perpetrated on the unsuspecting since time immemorial. But because it has become so prevalent, garnering victims through online contact, it can lead not only to unrecoverable financial loss, but what’s worse, to identity theft.
A “binary option” is a type of options contract where the payoff comes only if a certain outcome occurs on a specific financial asset. Typically, you make a bet on whether the price of a stock, commodity, or currency will rise above or fall below a stated level by a certain time. The term “option” is a misnomer (all part of the scam, of course), because buyers of the contract do not actually have the opportunity to buy or sell the underlying security, as they do with real options. A binary option is essentially just a betting slip, similar to what you get at the races for a bet placed on a horse to win.
However, unlike the racetrack, the binary options scam lures you in with a few small early “wins” (all faked, of course). Once you’ve been hooked, the binary options trading platforms – typically fake websites located overseas – will require you to provide copies of credit cards, passport, driver’s license, utility bills, and other personal data (under the pretext of doing a “credit check”). Once they have that (it’s what they’re really after), they’ll have effectively stolen your identity, allowing them to rack up thousands of dollars on your card, and use your identity for even more nefarious purposes. And you’ll never again see any money you’ve put up or any supposed “winnings” from your binary options trades.
The binary options scam has become a real problem, targeting investors who browse financial websites. In recent cases, TV personality and Conservative leadership candidate Kevin O’Leary’s identity and image have been fraudulently used by binary options scammers to lure in victims. In a Jan. 30 release, the Ontario Securities Commission advised that The Millionaire Blueprint, Play It On Point, Eurostreet Money, and Boss Capital are among the scammer websites that have illegally used Mr. O’Leary’s name and likeness. Sadly, a Manitoba business owner and father of four recently fell victim to a binary options fraud, losing hundreds of thousands of dollars, leading him to take his own life.
How to avoid becoming a victim
Such tragic losses are entirely preventable. The first thing to remember if you are solicited to put up money for an investment opportunity online or by phone is that offering investments for sale in Canada is a regulated activity. Before even thinking of putting up any money, check with the Canadian Securities Administrators for registration and enforcement history of the person or organization offering you the investment. The CSA has an excellent search engine at http://aretheyregistered.ca, which will tell you very quickly whether what you’ve been offered is legitimate.
Important Note:The OSC currently advises that “no business is currently registered or authorized to market or sell binary options in Canada.”
The Ontario Securities Commission also offers five excellent best practice tips for judging the legitimacy of any investment opportunity you may be offered:
1. Always check registration and enforcement history before investing.
2. Be wary of giving out personal information (including credit card information) by phone or online.
3. Never make a decision on the spot, even if pressured to do so (and the pressure can be intense). Research the offer and review it with your financial advisor. A legitimate investment will still be there tomorrow or next week or next month.
4. Insist that written information (e.g., prospectuses, financial statements, etc.) be sent to you. Review them with your financial advisor.
5. Understand completely what you’re getting in to, including risks, transaction details, mechanics of trading, reporting, and so on.
For more information on spotting and preventing fraud, check the Canadian Anti-Fraud Centre. Finally, remember the old investing adage, “If it sounds too good to be true, it is.”
Courtesy Fundata Canada Inc. © 2017. Robyn Thompson, CFP, CIM, FCSI, is president of Castlemark Wealth Management. This article is not intended as personalized advice. Securities mentioned are not guaranteed and carry risk of loss. No promise of performance is made or implied.