Cutting and running: The euphoria and the damage. Op Ed
It will no doubt come as very good news indeed that the binary options business is beginning to be suffocated by the global regulator and government level discourse against it, as well as the public awakening, in that the shadow cast over our industry by it is likely to disappear, however the damage done will take time to repair
Never has such a shadow been cast over the genuine, bona fide electronic trading industry than over the pasts seven years, a period during which, despite the vast innovations and achievements that those who lead our top quality industry forward have achieved in the quest to advance the cause of electronic financial markets, binary options brands burgeoned.
The binary options business, which is totally unaligned with the genuine electronic trading industry by which we stand firmly, has created tremendous damage to the overall public image of the entire online financial industry since its birth in 2010, which is particularly a bitter pill to swallow when considering that binary options has about as much to do with FinTech, live markets and the financial sector as dylithium crystals have to do with a carrot.
It was patently obvious that once the global governments, national attorneys, mainstream media and financial markets regulatory authorities got hold of the nefarious characters behind the binary options business, they would begin to cut and run.
This is the business model of those who operate this type of scheme.
The career paths of the platform developers and brand owners are in no way similar to those of the bona fide technology and financial services sectors of London, New York, Chicago or Hong Kong.
Instead of a well documented career that has resulted in refined experience and top quality relationships with the very best in the business, founded on internships with blue chip companies, followed by several senior executive positions within technology providers, banks and institutional firms before heading toward leadership with a comprehensive understanding of the industry and the refined business ethic that goes with the very top leaders in the FX industry, binary options is a total contrast, a world of low-brow criminals with no career to speak of other than buying (and in some cases stealing!) leads from gambling sites.
Among the binary brigade, there is not a Merrill Lynch internship, computer science degree from an Ivy League university, or technology partnership with Accenture or Ernst & Young in sight. Quite the opposite in fact. Ask one of the binary brand owners or market makers what a prime of prime is, or how liquidity risk management is conducted and they will give you a look of confusion.
Binary options runs in complete contrast to the leaders of London, New York and Chicago’s long established and highly regarded institutional, retail and listed derivatives ecosystem that comprises vast technology providers, infrastructure companies and publicly listed institutional and retail firms, which work alongside the Tier 1 banks which in turn have their own in-house proprietary systems and whose leaders, right the way through from bank executives to sales and support staff within retail FX firms are astute, highly educated and extremely knowledgeable. In short, this is a blue chip, polished career for life, run and furthered by equally polished enthusiasts.
Binary options could not be more different.
Most of the owners of these brands are barely literate, and have cut their teeth on the streets, selling pyramid schemes, recycling leads and stealing them from previous employers, moving on to the vice industry – adult entertainment and gambling – before taking the same you-against-me business model into binary options by disguising a weighted gambling system as a financial markets investment platform.
Of course, as with the many schemes that the street-wise but aggressive purveyors of binary options have operated before, the lifespan is short. It is simply grab as much as possible and run away.
Thus far, these brands have been able to circumvent national laws by structuring their companies in a way that they are based in one jurisdiction, registered in another, and then fleecing people in other parts of the world, meaning that there is no jurisdiction.
Israel’s national regulatory chief Professor Shmuel Hauser has been instrumental in attempting to put a stop to that loophole by requesting powers from the Attorney General to implement an international framework to ban it all from any form of operation. According to Professor Hauser, the binary options business is “filth” and is creating tremendous damage to Israel’s reputation, and as a result he considers it his personal responsiblity to extinguish it.
Referring to the structure of these companies, Haggai Carmon, a retired US Secret Agent who has spent his life investigating terror and espionage recently stated that the binary options firms resemble a “highly sophisticated terror or espionage organization”.
Now the running away has begun.
Yesterday, it was reported by many sources that Banc de Binary, one of the world’s largest binary options brands, has begun preparing to close its operations down and move on.
This was highly likely, and can be considered a relief to those in the genuine financial services industry as it is the beginning of the aforementioned shadow being removed from this business.
Advertising bans in mainland Europe for OTC products, complete bans on retail trading, extreme public discourse among those who do not know the huge difference between binary options and real electronic trading, have all caused damage to our industry, and this is why it is a good thing that the first of many, one of the large ones to boot, is shuffling off its own mortal coil of its own accord.
The global crackdown on binary options extends from China, where Baidu has banned any form of media marketing by binary options firms, to North America, where providing OTC binary options to a retail audience is a serious felony and contravenes the Exchange regulations set out by the Securities and Exchange Commission.
FinanceFeeds recently obtained some key information from government officials, which not only proves that many binary options firms are still flouting the law by stealing money from American citizens, but also shows that the attempts by the binary options firms to counteract this crackdown will be absolutely futile.
Previously during our investigations, we have highlighted cases in which, instead of toning down their behavior in light of such high profile discourse against their activities, many binary options firms are actually becoming more gregarious and are stealing larger amounts of money, cases of which can be viewed here.
Our most recent research demonstrates that binary firms which use smoke and mirror tactics to avoid being caught by authorities which only have jurisdiction over their own territory is about to be brought to a halt.
This is because many firms originate in Israel, yet process their traffic via various offshore jurisdictions as well as other nations. Now, the financial authorities are aware of this and are not just issuing warnings, but actually responding to customers in order to gain all information so that the perpetrators can be prosecuted.
In one particular case, an Israeli platform provider is providing market making facilities to a binary brand called Porter Finance, which uses a ‘portfolio manager’ (there is no such thing in binary options, as there is no live market and no transactions take place) called Greymountain Management.
The firms took almost $3 million from one particular customer, who decided that he was not going to take that lying down, and approached the authorities in the regions in which these firms, and their platform provider, host and execute their business, one of such places being Luxembourg.
The client, an American citizen living in America, which means that he has been solicited illegally in the first place by the binary options firm, approached the Luxembourg CSSF, and expected to receive a reply that indicates that he is not using a firm regulated by them and there is no recourse, however this is not what materialized.
Instead, the Luxembourg authorities stated that they will go after the fraudsters if all information is turned over to them, even though the fraud was committed outside Luxembourg, yet was conducted via servers in Luxembourg – and the most interesting aspect is that since 2005, the Luxembourg CSSF has had a memorandum of understanding to cooperate with Israeli authorities, allowing them to bring to book the actual providers and market makers themselves in Israel.
The recipient of this letter explained to FinanceFeeds that he now has the full backing of the US and Luxembourg authorities, which in turn have the abilities to work with the Israeli authorities, and that he intends to take this all the way and not just to accept a settlement but to help the regulators put a stop to this activity by handing over full details which links the market maker to the brand and the whereabouts of each operation.
In Israel, Professor Hauser, managed to get binary options banned under gambling laws as gambling is illegal in Israel, and is now embarking on a fully fledged mission to put an end to the entire business altogether by putting new laws through the Knesset (Israeli parliament) to, in Professor Hauser’s own words “quash the entire filthy business.”
Belgium has outlawed binary options, unfortunately along with other FX and derivative products, and France has banned binary options and is working with Israeli police to catch 15 directors of warehouse FX firms and binary brands in order to hold them accountable for their actions in a criminal court.
The Financial Conduct Authority in Britain has decided not to license binary options as a financial markets product, despite considering doing so relatively recently. The FCA’s decision not to proceed was down to the number of scams that have been perpetrated by binary options firms.
The difference between the two is as visible as it is audible.
Recently, as the jaws of the crusher close in on the binary options firms, some of its leaders formed an unofficial back-street lobbyists, many of whom are proprietors of the major binary options providers and brands, held a secret meeting in Cyprus to establish the EUBOA, an acronym, itself mis-spelled, of European Brokers Association.
Forming the EUBOA are senior members of staff (I will not call them executives) from major binary options firms including SpotOption and TechFinancials. SpotOption, which is the company leading the lobby, of which Banc de Binary is its largest nbrand, has a Cyprus entity which rather tenuously calls itself an ‘exchange’, which is an absolute misuse of the term. None of these companies are exchanges, neither are they OTC derivatives dealers because there are no price feeds whatsoever – it is you against the house.
When looking at the most successful firms in the business, even more concern should arise. 24Option, one of the largest brands that uses TechFinancials’ platform, was raided by Israeli police three years ago, one of its shareholders having been removed from the office and arrested.
TRADOLOGIC, one of the largest platform providers in the binary options business, was subject to a similar matter when one of its major shareholders was arrested for money laundering and fraud.
Banc de Binary itself was subject to an $11 million fine from the CFTC for illegally soliciting US customers despite having been in receipt of a cease and desist order prior to the charges issued against the firm in 2013 and has since been the subject of a litany of complaints that adorn the internet by volumes.
Anyoption, one of the largest brands, is owned and operated by Shay Ben-Asulin, who was charged by the Securities and Exchange Commission in America in 2011 for participating in pump-and-dump schemes and for engaging in a fraudulent scheme to conceal the sales of millions of shares of their companies, netting him and his 7 accomplices $33 million, yet he went on to found a large binary options brand after this, continuing to satisfy his thirst for ripping people off.
Hardly the most salubrious set of people, and the powers that be in senior government positions globally are well aware of this, have been taking an active role in attempting to preserve their fruit-market industry, but in the end, there is no way.
Whilst there is light at the end of the tunnel for the bona fide online financial services industry in that the end is nigh for the binary options business, the damage done to reputation and the high profile coverage in the media will take some time to disassociate itself from the noise and government discourse that has surrounded it, and for the regulators and governments to begin to realize that binary options is NOT the same as real electronic trading.
The likelihood is that these firms will close, and then no recourse can be taken over a firm that does not exist anymore, as it looks as though they will be subject to laws that make this type of business illegal, rather than any laws which allow investigators or police to retrospectively arrest and jail perpetrators.
Thus, they will close and move onto their next scheme.
Empty vessels make the most noise, as the wise parlance goes.
Image: Knesset (Israeli parliament), where the government has begun the committee against binary options.