CFTC secures Court Order imposing over $22m in penalties on binary options marketers

The United States Commodity Futures Trading Commission (CFTC) has managed to secure a Court Order imposing a heavy monetary penalty on binary options fraudsters. The regulator announces that Judge Timothy Corrigan of the U.S. District Court for the Middle District of Florida entered a Consent Order for Permanent Injunction, Civil Monetary Penalty, and Other Equitable Relief against Dr. Michael Shah and Zilmil, Inc. of Jacksonville, Florida. The defendants have been found to have engaged in a large-scale internet fraud scheme from at least June 2013 through July 10, 2017 involving off-exchange binary options.

The Order imposes monetary sanctions totaling $22,854,289.69. It also permanently enjoins the defendants from making fraudulent misrepresentations in the solicitation of binary options, engaging in activities relating to the illegal offering of commodity options, and acting as an unregistered commodity trading adviser in violation of the Commodity Exchange Act and CFTC Regulations.

Although the sum of the penalty seems significant, it barely matches the size of the penalty sought by the CFTC as FinanceFeeds reported back in July 2018. Furthermore, the CFTC cautions that orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets.

The Order stems from an enforcement action titled CFTC v. Scharf, No. 3:17-cv-00774-TJC-MCR (M.D. Fla.) The Order finds that the defendants acted as independent marketers, referred to as “affiliate marketers,” who attracted and funneled customers to unregistered binary options trading websites, including by offering so-called binary options autotrading systems with names like “Millionaire Money Machine.”

As found in the Order, Zilmil claimed to be one of the biggest affiliate marketers in the binary option industry. The defendants sent more than 60 million mass emails to more than 1.4 million unique email addresses in just one seven-month period. The emails contained false and misleading statements about the performance of the trading systems – for example, that customers could make “millions” with the systems. During the Relevant Period, the defendants made more than $17.8 million from the sale of its autotrading systems and commissions from the binary options websites.

The total judgment of $22,854,289.69 comprises a restitution award of $9,300,000 against Dr. Shah, plus a civil monetary penalty of $1 million, and a restitution award of $8,554,289.69 against Zilmil, plus a civil monetary penalty of $4 million. The Order provides for the immediate transfer of ownership of approximately $9.2 million in cash and cash equivalents from the defendants to the Kenneth Murena of Damian & Valori LLP in Miami, the court-appointed equity receiver in this case.

Separately, the Court entered a default judgment order against CIT Investments LLC, Brevspand EOOD, and CIT Investments Ltd. for engaging in fraud and illegal binary options activities. The Default Judgment found that throughout the relevant period the defaulting defendants were part of a single common enterprise that operated an illegal binary options scam. The illegal binary options scam was largely conducted through internet websites, in particular Citrades.com. According to the Default Judgment, Citrades.com claimed to be started by “a group of highly accredited Wall Street brokers” and the website purported to be the “leading platform” for binary options trading. Citrades.com touted its binary options products by claiming that trading through the website was safe and secure, highly profitable, and that traders could make up to 89% profits with as much as 500% returns. The defaulting defendants also offered autotrading systems through Citrades.com and Autotradingbinary.com that promised 100% automated binary options profits. The court found that, contrary to these claims, the customers of the defaulting defendants were subject to substantial risk that they would lose money trading binary options and that their funds would be simply misappropriated.

The Court found that these activities constituted violations of the Commodity Exchange Act, and ordered the Defaulting Defendants to pay $4,480,432.60 in restitution to their victims, as well as a penalty of $13,441,294.80.