Trading standards tackles binary options fraud In this feature | binary options | investment fraud | operation mass Wheel of fortune With consumer losses of more than 18m reported in the first half of 2017, City of London Trading Standards organised a day of action against binary options fraud. But this is a scam unlike any other, as louise Parfitt finds out A sk a trading standards officer who is most likely to fall victim to a scam, and youll probably hear them say older people, with women more likely to be conned than men. It would follow that younger men are the least likely to fall victim to fraudsters but there is one scam that is tearing off mens cloak of invincibility. The latest figures from Action Fraud show that, in the first half of 2017, more than 18m was lost by just 697 people men aged between 25 and 45 in binary options fraud. Binary options trading involves gambling on whether the price of a commodity will go up or down. Up until this month (January), it was regulated by the UKs Gambling Commission, but it will now be treated like a financial product. The 697 people who lost out represent just those who reported the crime; as with other scams, many victims feel too embarrassed to come forward once they realise theyve been had. The key differences between this and other scams are the demographics, and the route of engagement used by scammers. Enticement to take part in a binary It has a big impact when you knock at options investment is often carried the door of a business and you have a via social media, says Steve Playle, couple of police officers standing trading standards manager from the behind you City of London Corporation. People see pop-ups online and they get lured in to make some further enquiries. The binary options companies spend an awful lot of money promoting their services to a younger, largely male audience. For example, a lot of Premier League football clubs have sponsors who are engaged in higher-risk investments including binary options so that shows at whom these things are targeted. Increase in binary-options fraud Although binary options is not a new trading activity, the sums reported lost by victims have risen at an alarming rate over the past few years. In 2013, nearly 205,000 was reported lost; in 2016, that figure had climbed to almost 23m. The other thing that has changed is the supposed location of these firms. For a while, many were based in Israel until the law changed in 2017, making the selling of binary options to Israeli citizens and foreigners illegal. However, Playle says there are many countries such as Bulgaria stepping into the vacuum, and many try to promote an air of credibility by giving their firm a City of London address, something Playle and his team are trying to stop. Consumers are reassured by seeing a City of London address on the companys website and that is part of the problem we are trying to tackle, he says. City of London TS works closely with the City of London police and other agencies including the Metropolitan police, the Financial Conduct Authority, HM Revenue and Customs, and the Insolvency Service under the umbrella Operation Broadway. The initiative has been going since 2014, and aims to tackle investment fraud in the City of London by acting at the first hint of a problem with a business, before it has a chance to rip off too many people. We have meetings every two weeks, when we share the latest intelligence that has come in, Playle explains. We noticed an increase in the number of binary options companies that had an association with the City. So, early in 2017, we pulled together a list through doing some open-source research on the internet to try to find all the businesses that claimed to be doing binaries and had an address in the City of London. We found about 120 companies, which we thought was quite high. BO rO ILEr SC Om Am S Boots on the ground Playles team visited each of the premises to see if the listed businesses were physically located at those places. Out of 120, about 90 were not at the address from which they claimed to be operating. They just werent there, Playle says. There were some legitimate mail-forwarding businesses and serviced offices based at those addresses, but theyd never heard of the binary options companies. Thefraudsters had literally picked an address at random that soundedgood and whacked it on the website, to give their business an air of credibility. Details of the 90 companies without a presence at the addresses were handed to the City of London police to get the websites taken down. Some of the businesses were registered with Companies House, in another attempt to appear credible. Information was also passed to the serviced offices that were being virtually squatted, so they could get the name of the firm taken off their Companies House address listing. Playle and his team took the information they had gathered to the next Operation Broadway meeting, where it was decided further action was needed to The best way of going about our investigate the remaining 30 business is to work in partnership with businesses. This was to be done under Operation Mass a City of other agencies, such as the police London police initiative, run every six and FCA, to try to disrupt activity as months or so, for which extra resources soon as possible are made available on a particular day for a specific action. On this occasion, it was decided to look at binary options and have a targeted day of action last October. Day of action Planning for the day of action took about three months, and involved looking at the intelligence, what was known about the premises that were to be visited, and who was available to take part. On the day, police and trading standards officers went to speak to the companies about their business and offer advice on compliance. Most of the firms were engaged in forex trading in which all the worlds currencies are traded on the foreign exchange rather than binary options. According to Playle, most were reputable and some were registered with the FCA, although there were a couple of instances where the companies had heard about the visits and vanished before they could be made. One company disappeared the day before we were due to go and pay them a visit, Playle says. The service office told us they had just paid their next three months rent which was about 10,000 but [the company] didnt seem to care about it: they just disappeared because they didnt want a visit from trading standards and the police. Although most binary options companies appeared to be squatting at addresses, officers captured all the information the names of the businesses, addresses and telephone numbers being used, and who was running the business on the police intelligence systems, in case further issues arose. That has such a big impact, when you knock at the door of a business and you have a couple of police officers standing behind you. Itmakes them aware that we know they are there, and it sends out a very subtle message that they need to be careful about their future conduct, says Playle. That is part of the benefit of doing the Operation Broadway work it is very much about getting out from behind your desk and going knocking on doors, so businesses know that police and trading standards are out there looking for investment fraud. rY S NA N BI TIO P INg D O AD E Tr LAIN xP E Operation Offspring No prosecutions were brought through Operation Mass, but Playle says taking fraudsters through the court system was never the intention. To bring a proper prosecution against a boiler room [offices set up specifically for fraudsters to cold call genuine businesses] takes years and years, he explains. We simply havent got the resources in the City of London TS for that, so we figure the best way of going about our business is to work in partnership with other agencies, such as the police and FCA, to try to disrupt activity to get in there really early doors, before people have a chance to get established. Playle says these visits also help companies that own the offices to be more vigilant about who they rent space to. If a service office is aware that a business has had a visit from trading standards and could be a potential problem they will often take matters into their own hands and exit relations with that particular client. So the business has to start from scratch again and find somewhere else to start trading, which is exactly the sort of disruption Playle and his team are after. The trade association of all the serviced offices and mail-forwarding businesses the Business Centre Association (BCA) has regular meetings every In 2013, nearly 205,000 was reported few months, and we go along to lost to binary option fraud; in 2016 that these, with the police and other figure had climbed to almost 23m agencies, Playle says. We are now regularly receiving intelligence reports from the BCA about clients they have suspicions about, or clients they have actually turned down, and that all goes into the intelligence system as well. So it is almost getting to a stage of self-regulation by the industry, to make sure the bad guys dont get the opportunity to start before we even know about them. Toolkit for other services Operation Broadway teams have conducted inspections and disruption raids at more than 100 offices in the City and Canary Wharf since its launch. Police and trading standards officers believe this has created a hostile environment for fraudsters; there seems to be fewer businesses being brought to the attention of the regular meetings. Of course, this could mean the binary options companies are moving on elsewhere. Indeed, Playle has been involved in another initiative called Operation Offspring to reach out to other London boroughs, including Camden, Islington and Southwark, which have mailforwarding businesses on their patch, but perhaps havent got the resources to do the visit. We have funding until March 2018 for an officer, who has been trying to spread the good work that Operation Broadway has been doing, to encourage other London boroughs to do the same thing, he says. So far, weve worked with about 14 other London boroughs. They have all been very positive about the work weve been doing to encourage them to enforce the rules around services offices. If there is money to be made, however, a seasoned scammer will always find a way of setting up somewhere else. As part of Operation Offspring, Playle will be producing a toolkit in the next few months, toshare with other trading standards services around the UK. Thiswill give advice on carrying out inspections at serviced offices and mail-forwarding businesses, to further disrupt investment fraud. Lots of big towns have issues with investment fraud, but it is a case of how high it is on the priority list for those individual services, Playle says. But if we can put together an information pack and share thebest practice weve got here in the City of London, we can beas disruptive as possible and make the UK an unattractive place for scammers. If y ou hav que ea ries ny ab issu out es the this rais ed arti in cle to f , or ind wis out ple h mo ase re, co Ste nta ve ct Pla yle Credits Louise Parfitt is a writer for TS Today. To share this page, in the toolbar click on You might also like The butterfly effect November 2017 Images: iStock.com/andresr BO rO ILEr Om SC Am S The Financial Conduct Authority says share sometimes losing all of and bond scams are often run from boiler their savings, or even their rooms, where fraudsters cold call investors family home. offering them worthless, overpriced or even non-existent shares or bonds. Boiler rooms use increasingly sophisticated Even seasoned investors have been caught out, with the biggest individual loss recorded by the police being 6m. tactics to approach investors, offering to buy or sell shares in a way that will bring a huge return. But victims are often left out of pocket rY S NA N BI TIO P INg D O AD E Tr LAIN xP E Source: Financial Conduct Authority, www.fca.org.uk Binary options trading Up until this year, binary options firms were involves deciding whether regulated by the UKs Gambling Commission. the price of a commodity Other EU countries consider binary options to will go up or down. Its a bit like gambling because there are only two outcomes win or lose hence the name binary. It is legal in the UK, but it is an industry be more akin to a financial product than a gambling one, and the UK government has now decided to treat binary options in the same way. From January 2018, binary options fall under the remit of the Financial Conduct Authority open to abuse. Companies will often (FCA). However, it is still a largely unregulated disappear, taking a consumers money with industry; if the hardware used for the binary them, or refuse to credit customer accounts. options platform is based outside the UK, then Other types of fraudulent activity include the company doesnt come under the control manipulating software to distort prices and of the FCA and consumers are unable to take payouts, or offering a higher-than-average advantage of any protections offered by the return on investment. UKs regulatory framework.
