CFTC seeks to impose monetary penalty of $56m on binary options marketers

Maria Nikolova

The defendants promoted entities like LBinary, Global Trader 365, Vault Options, TraderXP, Trade Rush, Banc de Binary, Citrades, OptionMint, OptionRally, RBOptions, Bloombex Options, Redwood Options, BeeOptions, Amber Options, OptionsXO, and SpotFN.

The US regulators continue their fight against binary options scams, with the United States Commodity Futures Trading Commission (CFTC) now asking for a heavy monetary penalty to be imposed on binary options marketers Michael Shah and his company Zilmil, Inc.

On Thursday, July 12, 2018, the CFTC filed a Motion for a Summary Judgement against Shah and Zilmil, with the Florida Middle District Court. The document, seen by FinanceFeeds, requests that the Court orders the defendants to pay disgorgement in the amount of $18.67 million, as well as a civil monetary penalty of $56 million.

The CFTC argues that the heavy penalty reflects the gravity of the defendants’ offenses and the lack of mitigating circumstances.

The CFTC Complaint alleges that Michael Shah, acting through his company Zilmil, Inc., is the mastermind of an internet scam involving binary options. Between July 2012 and the present, Shah and Zilmil made more than $18.6 million in proceeds from their fraudulent scam.

Using fraudulent misrepresentations, the defendants induced people to deposit money with illegal binary options trading websites that purported to offer customers the ability to trade so-called binary options contracts online. The defendants acted as marketers for the following binary options websites: LBinary, Global Trader 365, Vault Options, TraderXP, Trade Rush, Banc de Binary, Citrades, OptionMint, OptionRally, RBOptions, Bloombex Options, Redwood Options, BeeOptions, Amber Options, OptionsXO, and SpotFN. None of these websites or their operators are or ever have been registered to offer binary options contracts to the public.

The marketers convinced customers to deposit money with the binary options websites by offering miracle software “trading systems” with names like 2014 Millionaire, Binary Genetic, and Millionaire Money Machine. For each person who deposited money with one of these trading websites, the marketers received a commission of as much as $450.

Zilmil and Shah claimed in emails and websites that their trading systems would automatically place profitable trades for the user or provide “signals” for the user to make profitable trades. A customer who signed up for one of the Zilmil Defendants’ trading systems would be instructed to deposit money with a binary options website. Customers who deposited money with a binary options website rarely, if ever, received any money back. Their money was typically misappropriated by the binary options website operators.

Shah acknowledged in chat messages and emails that the trading systems he promoted were fraudulent and did not work as advertised. Shah acknowledged as well that the customers who attempt to trade binary options will not make money, and that the customers’ funds will be misappropriated by the trading websites. He referred to his trading systems as “B.S.” and to the binary options websites as scammers.

Through the marketing of its so-called trading systems, the Zilmil and Shah were able to convince thousands of customers to deposit money with binary options websites. They used email marketing firms to send SPAM with misrepresentations about the trading systems to millions of people, paid video producers to make elaborate misleading video testimonials promoting the trading systems. The defendants also relied on other internet marketers, referred to as “affiliates,” to help spread the word about the binary options entities’ trading systems. These affiliates sent SPAM messages and links to websites provided by Shah to their own email lists in return for a share of commissions.

In testimony, the defendants have refused to answer any substantive questions about their operations. Instead, they have repeatedly invoked the rights against self-incrimination under Fifth Amendment.

And, since learning they were under investigation, the defendants have engaged in a campaign of witness-tampering, specifically instructing at least three witnesses to destroy all documents relating to the fraudulent conduct, the CFTC explains.

The regulator argues that Zilmil and Shah violated, inter alia, prohibitions in the Commodity Exchange Act and Commission Regulations against fraud by, and failure to register as, a commodity trading advisor.

The case is captioned Commodity Futures Trading Commission v. Scharf et al (3:17-cv-00774).

Read this next

Metaverse Gaming NFT

DCentral Miami brings together all of Web3, NFT, DeFi, Metaverse

The world’s biggest Web3 meeting entitled DCENTRAL Miami is set to take place November 28-29, featuring a lineup of some of the biggest and most influential names in the blockchain space.

Digital Assets

Crypto ban expands across UK banks as Starling joins ‎crackdown

UK digital bank Starling has banned ‎all customer payments related to cryptocurrencies, another blow for the crypto traders ‎who recently saw a sizable number of banks deciding not to ‎finance the wobbly asset class.‎

Interviews

Markets Direct at FIA EXPO 2022: Traders know what they want from brokers

The FIA Expo 2022, one of the most prestigious events within the global derivatives trading industry, took place in Chicago on 14 & 15 November.

Interviews

FIA Expo 2022: TNS addresses public cloud limitations with hybrid infrastructure

November is the month of the FIA Expo, one of the largest futures and options conferences in the world, bringing together regulators, exchanges, software vendors, and brokers in one place: the Sheraton Grand Chicago Riverwalk. 

Retail FX

Italy’s regulator blacks out Finance CapitalFX, MFCapitalFX

Italy’s Commissione Nazionale per le Società e la Borsa (CONSOB) has shut down new websites in an ongoing clampdown against firms it accuses of illegally promoting investment products in the country.

Retail FX

Suspected leader of Honk Kong ramp-and-dump scam appears in court

A leader of a sophisticated ramp-and-dump scheme made his first court appearance in a Hong Kong court today, charged with market manipulation and various criminal offences. The case stems from an earlier joint operation of Hong Kong’s financial watchdog, the Securities and Futures Commission (SFC), and the local police. 

Institutional FX

Cboe’s James Arrante discusses growing demand for fixed income, FX algo

We caught up with James Arrante, senior director of FX & US treasuries product and business management at Cboe Global Markets, to uncover emerging trends in the FX and fixed income markets and learn more about the bourse operator’s recent initiatives.

Retail FX

Eurotrader acquires UK broker Petra Asset Management

Eurotrader Group has formally entered into the UK market with the acquisition of FCA-regulated broker, previously named Petra Asset Management Ltd. The new entity operates under the brand name Eurotrade Capital Ltd.

Inside View, Retail FX

The Game of Chess Continues – OPEC, China and the Oil Market

Over the past decade, the US has been complaining about the amount of power which the BRIC group, and specifically China, has on the global economy. BRIC stands for Brazil, Russia, India and China; these were the world’s fastest growing economies. Only in the past 10 months, the US has turned their attention toward OPEC due to the prices of fuel. Nevertheless, China seems to have a strong influence even over the price of crude oil.

<