The Tennessee Department of Commerce & Insurance’s (TDCI) Securities Division is cautioning investors about schemes related to binary options amid the proliferation of online binary option platforms and a growing number of related investor complaints.

A binary option is a type of all-or-nothing investment contract, similar to placing a bet. Like the flip of a coin, there are only two possible outcomes: Heads you win or tails you lose. When an investor purchases a binary option contract, the investor predicts the value of an underlying asset (currency, stock, etc.) at a predetermined time or date in the future – similar to placing a bet. If the investor correctly predicts the asset price at the end of the contract, which can be just a matter of minutes, the investor receives the payout agreed upon in the contract. If the investor is incorrect, there is no payout and the investor loses the amount invested in the binary option.

“We want to help Tennessee investors better understand binary options, their risks and where to turn for help,” said TDCI’s Assistant Commissioner for Securities Frank Borger-Gilligan. “Remember, before making any financial decisions, ask questions, do your homework and contact the Tennessee Securities Division should you need assistance.”

Much of the binary option market operates through internet-based trading platforms. Such platforms often are not compliant with U.S. or Canadian regulatory requirements. In recent years, the number of unregistered platforms offering binary options has surged, resulting in an escalation of complaints to securities regulators. These complaints address the inherent risks in binary options as well as unrelated issues, such as false or misleading disclosures or theft of investors’ assets.

Complaints regarding binary options have included:

  • Investors’ funds not being deposited into their accounts
  • Firms refusing to return deposited funds to investors
  • Salespeople using high pressure tactics or financial threats
  • Unauthorized charges found on credit cards used to invest through a binary options website
  • Representatives demanding excessive fees when withdrawal requests are made
  • Follow-up calls offering to recover losses for an excessive fee
  • Calls from people claiming to work for, or on behalf of, a government agency

Offering binary options contracts through a website is attractive to scammers because they can reach potential investors in numerous countries while masking their true identities and locations. They will use a number of tactics to get you to invest.

Look for these warning signs:

  • Unsolicited investment offers – emails or phone calls from an unknown person or firm directing you to a binary option website offering high returns.
  • High-pressure sales tactics – threatening calls or emails from representatives of binary options websites.
  • Personal information requests – claims from representatives of binary options websites that the government requires copies or photographs of your passport, driver’s license, credit cards, etc.
  • Lack of management/firm information – websites that are vague on details about who manages or works at the company or where it is actually located.

In binary options schemes, it is common for scammers to target the investor a second time by claiming to be affiliated with a government agency. For a fee, they offer to help the investor recover money previously lost in the binary options scam. This is called a “reload.”

How Can Investors Protect Themselves?

Offering investment services or products, whether online or in-person, is a regulated activity overseen by securities regulators.

In the United States, some binary options list on regulated exchanges or trade on a designated contract market and are subject to regulatory oversight. In Canada, no business is currently registered or authorized to market or sell binary options.

Before making an investment decision, U.S. investors should check all of the following:

Additional investor education information regarding binary options can be accessed through the following sources: The North American Securities Administrators Association (NASAA), the U.S. Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC).

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