Savers are investing their money in fraudulent online trading sites offering the promise of potentially huge payouts with little risk attached.
The majority of the complaints relate to companies that appear to be based overseas and are attracting increasing numbers of users, particularly pensioners, who say their investments are frozen if they try to withdraw their money.
The companies encourage investors to make apparently simple bets on whether shares or currencies will rise or fall in value. Many such “binary options trading platforms” are legitimate, but an increasing number are fraudulent.
Both types currently fall outside the control of financial regulators in the UK, meaning that people have little recourse to get their money back if they feel they’ve been scammed.
In the year to May 2016, the most recent for which figures are available, the National Fraud Intelligence Bureau (NFIB), which is part of the City of London Police, reported having received 305 reports of binary options scams, or 27 each month.
But one lawyer representing victims told The Independent that the true number is likely to be significantly higher – running into the thousands each year – as victims are frequently too embarrassed to come forward and admit to being conned. He described it as “possibly the biggest financial scam in the world”.
Elizabeth Ablett from Derbyshire said that she signed up to a platform caller Binary Uno in December 2016. The 70-year-old’s husband had died the previous year and she didn’t have a pension big enough to live on.
Ms Ablett said that she initially invested £200 with the company, but that individuals who described themselves to her as “brokers” convinced her to up her stakes, telling her she was trading on the performance of gold and stocks.
By the end of March, she said, she had invested a total equivalent to almost £40,000, nearly her entire life savings. The following month, she said, her online account balance was shown to have slipped to zero. She said that nobody at BinaryUno answered her calls.
“They basically had assured me that the money I invested could not be lost,” she told The Independent. She said that they had convinced her to keep paying in by promising to match some of her investments.
Later she said she was contacted by a representative who told her that she would only be paid out if she had trading revenues of at least £1.5m. “Now I realise just how stupid I was,” she said. “I have no money at all. I’m skint.”
The Australian Securities and Investments Commission and the British Columbia Securities Commission in Canada have both publicly called for caution when dealing with binary options trading platforms. Both specifically name Binary Uno.
Lawyers and personal finance experts speaking to The Independent said the Government was unable to regulate the market because the platforms – even the legitimate ones – were not controlled by the Financial Conduct Authority (FCA) watchdog.
Some binary options trading platforms are regulated by the UK’s Gambling Commission, but only if the firm has gambling equipment located in the country.
Pensioner James Hellis, a former self-employed IT worker, said he invested a total of nearly £60,000 in a binary trading platform called Tradorax. Mr Hellis said he was initially approached online by the firm in February 2016. He said that he felt his pension income might be improved by accepting the investment opportunity he said they were offering him.
Like Ms Ablett, Mr Hellis said he was assigned someone who identified themselves as a “broker” to trade on his behalf and made a series of investments over the course of several months.
In December, he said he filed a request with the platform to withdraw his money, the majority of which had stemmed from his pension fund. He claims that request was denied and – like Ms Ablett – he said his account later appeared to have been blocked.
Because Mr Hellis had paid for some of the investments with credit cards, he said he raised a chargeback dispute with his banks, but they have so far been unable to help him.
He said he also reported the matter to the Action Fraud Police – the national reporting centre for fraud and cyber crime which operates alongside the NFIB within the City of London Police – and the Financial Ombudsman Service (FOS), which was set up by Parliament to resolve problems with financial services. The latter, Mr Hellis said, has told him that it is looking into his case.
“If this situation occurred in the front office of an investment bank the perpetrators would be fired,” Mr Hellis claimed. “Why is the regulator doing nothing? Why are the banks doing nothing?”
A spokesperson for the FOS confirmed that Tradorax is not regulated by the FCA, which means investors do not have recourse to the ombudsman “if things go wrong”.
The Independent received no replies to emails sent to addresses on both Tradorax and Binary Uno’s websites or calls made to numbers listed.
Richard Howlett, a partner at London-based law firm Selachii LLP, has dealt with dozens of cases concerning binary options trading fraud, with victims conned out of anywhere from a few hundred pounds to more than £1m.
He said he had been approached by people who have lost money on dozens of different sites and that new ones appear to be springing up daily.
In many cases, clients’ only hope for getting their money back is if banks to which victims have made payments are willing to cooperate by freezing accounts out of fear of being accused of facilitating criminal activity, he said.
“Sometimes that puts enough pressure on the platform to pay out at least some of the money owed,” he said. “But most of the time there’s nothing to be done except raise awareness to prevent more people from being conned.”
He said fraud perpetrated by certain binary options trading platforms was “possibly the biggest financial scam in the world”.
Many of the individuals who turn to Mr Howlett for help are pensioners, especially tempted to give trading a shot because of changes to regulation introduced in April 2015, which allow for easier access to funds.
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Under the new rules, pensioners are no longer required to buy an annuity and are able to take their entire pension as a lump sum. Suddenly having access to so much cash, and with such low returns offered by other investment options, the prospect of trading binary options can be enticing.
“Pension freedoms have to a certain extent opened a can of worms,” says Kate Smith, head of pensions at Aegon. She said that some scammers are specifically targeting pensioners.
“They’re playing on people’s weaknesses.”
David Newman, head of pensions at investment firm Close Brothers Asset Management, said that “greed can send people to do silly things” but also admitted that anyone is at risk of falling for a fraudster.
“People need to be educated as early as possible about this sort of thing,” he said. “Just putting a leaflet at the back of a financial statement is not enough.”
Figures published this month by the FCA show that 53 per cent of pension pots accessed since the new rules were introduced have been withdrawn fully. And the watchdog has recently raised a number of concerns relating to what people are doing with that money.
A full report into the issues around pension freedom is due to be published next year.
In December the FCA published a consultation paper on the risks associated with binary options trading and, under a piece of financial regulation due to be introduced in January, regulated financial betting platforms will come under the FCA’s remit, but the watchdog says that its hands are tied when it comes to any unregulated operations.
Andrew Biccard, a 32-year old South African who runs his own catering company, claims he lost more than £2,000 that he’d taken out of his business on several platforms that appeared to offer trading opportunities on the cryptocurrency Bitcoin. Like many others, he can’t afford legal representation.
“Of course I know that these opportunities look too good to be true, but the way the world economy is at the moment, everyone is making for ways to make money,” he said. “So it’s very tempting”.
One army veteran suffering post-traumatic stress disorder after serving time in Afghanistan said he fell for a fraudster while trying to generate some extra income for his family.
Lawyers say that the cross-border nature of the platforms means that any regulation would have to be coordinated on an international scale.
Prospects of that happening look dim at the moment, but there are signs that individual authorities are starting to take action.
In Israel – where many of the platforms originally appeared to be based – the cabinet last month approved a bill to ban the entire binary options trading industry.
“Beyond the terrible economic harm to citizens around the world, sellers of binary options are causing increasing, accelerating ruinous damage to Israel and are inflaming anti-Semitism and anti-Israel feeling,” Israel Securities Authority (ISA) chairman Shmuel Hauser, who drafted the law together with the attorney general and justice ministry, told The Times of Israel.
If the law passes all committees, it will come into effect later this year, allowing the ISA to prosecute and jail anyone peddling binary options from within Israeli to anybody in any country.
For Elizabeth Ablett and James Hellis, legislation like this will likely come too late. But they welcome it as a step in the right direction nonetheless.
“It’s disgusting and I feel so foolish to have fallen for it,” says Ms Ablett. “For now, all I can say is that if my story prevents at least one person from falling for this, it was definitely worth telling.”
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