FOREIGN CURRENCY TRADING FRAUDS
The United States Commodity Futures Trading Commission has
issued the following consumer warning regarding foreign currency trading
frauds. Additional information may be obtained from the CFTC's website at
www.cftc.gov. Suspicious activities should be reported to the CFTC or the Ohio
Division of Securities.
Have you been solicited to trade foreign currency contracts? If
so, you need to know the difference between fraudulent and legitimate trading
opportunities.
Financial markets are booming, and unfortunately, this boom means a
corresponding rise in the number and types of financial fraud. Consumers need
to take special care to protect themselves from financial frauds. Among the
schemes being used to defraud the public are those involving so-called "foreign
currency trading." While much foreign currency trading is legitimate, a form of
foreign currency trading has been employed in recent years to defraud members
of the public. Currency trading scams often attract customers through
advertisements in local newspapers or radio or on Internet sites. Those
advertisements may tout highly-paid employment opportunities or high-return,
low-risk investment opportunities in foreign currency trading.
The United States Commodity Futures Trading Commission (CFTC)
investigates and brings actions against firms suspected of illegally offering
or selling foreign currency futures contracts to the general public. Over the
past several years, the CFTC has successfully brought actions against
wrongdoers who lured customers by claims that one could earn large profits
trading foreign currency contracts without much risk or by acting as a
highly-paid "account executive" trading foreign currency for customers.
Distinguishing Between the Legitimate and Fraudulent Currency
Markets
Foreign currency futures contracts may be legitimately traded
either on a recognized futures exchange or in the "interbank market," which
generally involves trading between large institutions such as banks and
corporations, rather than individual or retail customers. Fraudulent currency
trading firms often tell customers that their trading is done in the "interbank
market." Be wary of any firm that claims that you can or should trade in the
"interbank market" or that it can or will do so on your behalf. Your losses can
be very large in a single day. Companies that tell you otherwise may well be
engaged in illegal schemes.
Fraudulent Currency Trading Companies
If you are solicited by a company that claims to trade currencies
and asks you to commit funds for those purposes, you should be very careful.
Watch for the warning signs listed below, and take the following precautions
before placing your funds with any currency trading company:
1. Stay Away From Opportunities That Sound Too Good to Be True
Always remember that there is no such thing as a "free lunch," and
get-rich-quick schemes, including those involving foreign currency trading,
tend to be frauds. Be especially cautious if you have acquired a large sum of
cash recently and are looking for a safe investment vehicle. In particular,
retirees with access to their retirement funds may be attractive targets for
fraudulent operators. Getting your money back once it is gone can be difficult
or impossible.
2. Avoid Any Company that Predicts or Guarantees Large Profits
Be wary of companies that guarantee profits or assure a certain
percentage of profits. The following are examples of statements made by
fraudulent currency traders:
"Whether the market moves up or down, in the currency market you
will make a profit."
"Expect returns of 35-76 percent."
"We guarantee you will make at least a 30-40% rate of return
within two months."
3. Stay Away From Companies That Promise Little or No Financial
Risk
Be suspicious of companies that downplay risks or state that
written risk disclosure statements are routine formalities imposed by the
government. The currency futures markets are volatile and contain substantial
risks for unsophisticated customers. The currency futures markets are not the
place to put any funds that you cannot afford to lose. For example, retirement
funds should not be used for currency trading. You can lose most or all of
those funds very quickly trading foreign currency futures contracts. Therefore,
beware of companies that make the following types of statements:
"You take only as much risk as you see fit."
"With a $10,000 deposit, the maximum you can lose is $200 to $250
per day."
4. Don't Trade on Margin Unless You Understand What It Means
Many currency traders ask customers to give them money known as
"margin," often sums in the range of $1,000 to $5,000. However, those amounts,
which are relatively small in the currency markets, actually control far larger
dollar amounts of trading, a fact that often is poorly explained to customers.
You need to be aware of an important fact - margin trading can make you
responsible for dollar losses that greatly exceed the margin amount you
deposited. Don't trade on margin unless you fully understand what you are doing
and are prepared to accept losses that exceed the margin amounts you paid.
5. Be Wary of Sending or Transferring Cash on the Internet, By
Mail, or Otherwise
It costs an Internet advertiser just pennies per day to reach a
potential audience of millions of persons, and phony currency trading firms
have seized upon the Internet as an inexpensive and effective way of reaching a
large pool of potential customers. Be especially alert to the dangers of
trading on-line; it is very easy to transfer funds on-line, but can often be
impossible to get them refunded. Many companies offering currency trading
on-line are not located within the United States and may not display an address
or any other information identifying their nationality on their Web site. Be
aware that if you transfer funds to those foreign firms it may be very
difficult or impossible to recover your funds.
6. Prior to Trading, Contact the Authorities
Prior to trading, you should check with law enforcement agencies,
including your state's Attorney General's Office and Consumer Protection
Bureau. Telephone numbers for these offices, or similarly named offices, are
listed in the state listings of your telephone book. In addition, you should
check with the state authorities and the Better Business Bureaus (BBB) in the
community where the company is located. Keep in mind, though, that this is not
a foolproof means of detecting fraud -- complaints often come in to these
agencies months after a fraud has occurred, and it may be too soon for the
company's victims to understand that they have been defrauded or to register
complaints with the BBB or other authorities.
Call the National Futures Association (NFA) at (800) 621-3570 and
ask whether the company and the individuals who work for it are registered with
the NFA or the CFTC and whether any of them has a disciplinary history or
current or prior legal judgments. Persons and companies conducting currency
frauds are often unregistered and will not necessarily appear in the NFA's
records.
If you encounter suspicious currency trading activity that may be
harmful to the public, please call the NFA at the number above, or call, write
or e-mail the CFTC at the number or addresses below.
7. Currency Scams Often Target Members of Ethnic Minorities
Some currency trading scams target potential customers in ethnic
communities, most particularly persons in the Russian, Chinese, and Indian
immigrant communities, through advertisements in ethnic newspapers and
television "infomercials." Many such advertisements offer so-called "job
opportunities" for "account executives" to trade foreign currencies. Be aware
that all "account executives" they hire might be expected to use their own
money for currency trading, as well as to recruit their family and friends to
do likewise. What appears to be a promising job opportunity is actually another
way many of these companies lure customers into parting with their cash.
8. Be Sure You Get the Company's Performance Track Record
Get as much information as possible about the firm's or
individual's performance record on behalf of other clients. It may be difficult
to do this. While the firm or broker is not required to provide this
information, you should be wary of any person who is not willing to do so or
who provides you with incomplete information. However, keep in mind that, even
if you do receive a glossy brochure or sophisticated-looking charts, the
information they contain might be false.
9. Don't Deal With Anyone Who Won't Give You Their Background
Get the background of the persons running or promoting the
company, if possible. Do not rely solely on oral statements or promises from
the firm's employees. Ask for all information in written form. Plan to do a lot
of checking of any information you receive to be sure that the company is and
does exactly what it says. If you cannot satisfy yourself that the persons with
whom you are dealing are completely legitimate and above-board, the wisest
course of action is to avoid trading foreign currencies through those
companies.
For More Information and Contacts
General information on the commodity futures markets and the CFTC
is available through the World Wide Web. Members of the public may report
suspected wrongdoing to the CFTC's Web site at http://www.cftc.gov. You also
can communicate directly with the CFTC's Division of Enforcement via e-mail at
enforcement@cftc.gov. Customers may also write or call the U.S. Commodity
Futures Trading Commission, Division of Enforcement, Three Lafayette Centre,
1155 21st Street, N.W., Washington, DC 20581, (202) 418-5320.