Binary Options Fraud: An International Fraud Scheme Targeting Canadians

In recent years, Canadians have increasingly been the victims of high-risk investment scams called binary options that have swindled many out of their entire life savings. In one disturbing case, after discovering he lost over $320,000 in a binary options scheme, a Manitoba man took his own life. Canadian securities regulators have seen a rise in complaints related to the scheme, with over 800 complaints reported in 2016, and a Binary Options Task Force has been created to deal with the issue. The Canadian Securities Administrators (CSA) has proposed a nationwide ban on binary options and, along with many provincial regulators, released educational resources, such as a new website, to warn Canadians about the risks of binary options.

So, what are binary options and why are they so risky?

In essence, binary options work like a bet where the investor wagers how a certain asset will fare in a given amount of time. For example, an investor can bet that the value of gold will rise by ‘x’ amount in the next ten minutes. If the investor is correct, they will be paid an agreed-upon amount, but if they are wrong, they lose all the money they invested in the scheme.

This already risky form of investment is made even more dangerous by the widespread fraudulent schemes that use false credentials and professional-looking online ads to lure in their victims through the Internet. They often claim to invest an individual’s money in binary options, but instead pocket it and tell the individual that they made a bad bet. Because of this, the US banned the advertisement of binary options in 2013 and the US Commodity Futures Trading Commission (CFTC) warns users on their website that “these schemes allegedly include refusing to credit customer accounts, denying fund reimbursement, identity theft, and manipulation of software to generate losing trades”.

Another factor that makes binary options very risky investments is that there is not a single registered binary options firm operating in Canada. In fact, many binary options firms are registered to countries such as Cyprus, Belize and the Seychelles, due to the countries’ lax financial regulations, and most firms actually operate out of Israel. The Times of Israel, which has been investigating the binary options industry in Israel since 2016, recently reported, “The widely fraudulent binary options industry is estimated to generate between $5 billion and $10 billion a year and to largely emanate from Israel. It has been estimated to number well over 100 companies, and to employ between 5,000 and tens of thousands of employees.”

Educate yourself to protect yourself

As mentioned, the CSA and several provincial securities regulators have developed excellent promotional materials and online resources, such as CSA’s website about binary options fraud, for individuals to educate themselves about binary options scams and how to avoid them. Of importance to note are two important links on the website: the first which links you to the National Registration Search Tool to check an individual’s or firm’s credentials to ensure that they are registered in Canada, and the second which brings you to a page with contact information for the CSA if you suspect fraud or have been a victim of it.

We encourage you to familiarize yourself with the website and resources at your disposal.