Exclusive: Massive binary options fraud exposed in detail – Here are the facts and figures
FinanceFeeds investigates in great detail the mechanics and techniques behind a very clever binary options scam that extracts several hundred thousand euros from a client, with the pretense of a managed account, and a smokescreen that removes every cent from the customer. Here is the entire scenario.
The continual and omnipresent attention that the retail binary options business attracts from mainstream media, regulatory authorities in various regions of the world, and in some cases law enforcement agencies is a long awaited testimony to the premise that OTC binary options should not be regarded as part of the bona fide electronic trading industry nor be regarded as a financial markets activity.
Just five years ago, the retail binary options business was a fledgling industry, however it has become a vast and international enterprise, with just shy of 300 currently active white label brands which are spread across 6 platforms which are specially designed for white label partners to quickly establish their business and begin to onboard retail customers.
Between 2011 and now, many binary options brands have come and gone. The turnover and lifespan of brands being often quite short, their business model being to establish a call center, take a full end to end solution from one of the 6 dedicated binary options platform providers.
They then call lead lists which in many cases have been purchased from affiliated entities in the online gambling sector in order to extract first time deposits which are often blown within the same day, before passing the lead to a retention desk whose duty it is to extract a further deposit which is then often blown quickly.
After this process, the customer often then does not deposit more. After all, most binary options brands have as much in common with the financial markets industry as Cheddar cheese does with thermonuclear fission in that most of the ethos behind the binary options business emulates that of an online casino and the customer lists are often compatible with gaming rather than financial markets.
This process, and the entire structure behind it does not resemble that of a financial markets environment – indeed, binary options platforms are not connected to any form of liquidity provider and there is no price feed. It is quite simply trader against house, and the ‘house’ has an absolute gaming mentality, but disguises the front end as a financial markets trading platform.
Many cases have come to light recently across the globe, and the high pressure methods being used to extract deposits – many of which are not returnable – along with the modus operandi of binary options brands which resort to techniques such as ‘zeroing’ an account if a withdrawal request is made, or locking customers into terms and conditions which stipulate that no withdrawals can be made until a certain number of ‘trades’ have been made during which time the company turns the handle in order that the client loses.
FinanceFeeds has been conducting extensive investigations into this, and has noticed that binary brands, despite the mounting regulatory pressure and public opinion, have begun in some cases to demonstrate more bravado, extracting vast sums of money from clients that to whom they make cold calls, with some cases involving up to $500,000 which cannot be withdrawn, and one case, in the Middle East, in which a customer made five deposits, each deposit being $5 million, never to see one cent of it again.
200,000 Euro ‘Portfolio management’ scam
In this particular investigation, FinanceFeeds has uncovered a confidence trick which involves extracting funds from customers, and then bolstering the customer’s confidence and giving the impression that a large profits can be made by a professional ‘portfolio manager’, managing the client’s, er…. ‘portfolio.’
Whilst this appears plausible to an unenlightened customer who is unfamiliar with the means by which binary options firms conduct their business and the opportunity of having their account ‘traded’ by a ‘professional’ may give confidence – when actually any company offering a complete stranger with no publicly available track record to trade an account which is provided by a binary options brand that is not connected to a live market should ring alarm bells.
Mr. C, a Panamanian resident who was on an assignment in Holland with Phillips, the company that he works for, has unfortunately found this out the hard way.
In August 2015, Mr. C (We have his real name and all of the correspondence and documentation) opened a binary options account with Eclipse Finance and deposited €200,000.
On August 17, 2015, Mr. C then executed an Eclipse Finance Letter of Direction/Limited Power of Attorney/Service Fee Authorization/Debit Authorization (the “LPOA”), which set forth the terms by which Top Binary Signals, a purported binary options portfolio manager, would be authorized to trade Mr. C’s account. A copy of the LPOA can be seen here:
As is clearly evident in the LPOA, Mr. C noted that the money manager was only authorized to have access to account from August 17, 2015 through April 17, 2016.
On or about December 16, 2015, Mr. C then executed a Managed Account Service Agreement (“MAS”) with Top Binary Signals, a brand operated by Mayfair Asset Management GmbH (“TBS”).
The document was countersigned by Ludwik Schulz from TBS.
The MAS was also authorized and approved in writing by Eclipse Finance, specifically on January 22, 2016 and bears Eclipse Finance’s seal. As is clearly evident in the MAS, the maximum term of the agreement is 8 months (and it is noted that the agreement began on August 17, 2015. Projected forward, the MAS expired on its own terms on April 17, 2016.
During the time that TBS was trading his account, Mr. C verified and confirmed with Eclipse Finance that it had all necessary documents on file with regard to his account and the MAS.
Based upon back office reports (which bear very little relevance) made available by Eclipse Finance to Mr. C, his account equity, under TBS’s management, grew from €200,000 to €3,476,140 as of Friday, April 15, 2016; the last business day before the MAS terminated on its own terms.
On April 16, 2016, Mr. C requested a) a withdrawal of €500,000 from his account (an arbitrary weekly maximum set by Eclipse Finance) and was told that it was queued for processing and b) access to the trading account that TBS had been managing pursuant to the MAS.
However, as of April 18, 2015, and against Mr. C’s strict instructions to the contrary, TBS continued to trade on his account.
On April 19, 2015, Mr. C advised Eclipse Finance and TBS in numerous emails and voicemails that the MAS expired as of April 17, 2015 and that all trading activity on his account was to cease immediately.
On April 20, 2015, Mr. C continued to send emails to both Eclipse Finance and TBS regarding his request that all trading in his account cease. Additionally, Mr. C requested that Eclipse Finance turn over to Mr. C access to the account which was being traded by MAS. Mr. C received no response from Eclipse Finance or TBS and he was not provided with access to his own trading account.
On April 21, 2015, Mr. C attempted to contact Eclipse Finance’s live chat operators to regain access to his trading account without any substantive response.
On this date, the unauthorized trading activity which occurred in Mr. C’s account reduced his balance to $0
The reply to a letter to this effect to Eclipse Finance resulted in Eclipse Finance rather ironically stating that criminals had accessed Mr. C’s account and traded it without authorization. A bizzarre claim to say the least, as no third party would have any benefit in zeroing a trading account that is hosted by a binary options brand – other than the brand itself. Quite simply, this would not be possible.
Regardless, Eclipse responded to Mr. C thus:
a) “Criminals forced their way into TBS’s systems; causing some of MAS accounts to make lots of losing trades with position sizes which led to a full devastation of the account.”
b) According to section 2.4 of the Eclipse Finance terms and conditions:
The Client has the right to authorize a third party to give instructions and/or Orders to the Company or to handle any other matters related to this Agreement, provided that the Client has notified the Company in writing that such a right shall be exercised by a third party and that this person is approved by the Company and fulfills all of Company’s conditions to allow this.
The Company shall act on instructions given duly by authorized third parties acting on behalf of the Client and the Client hereby indemnifies the Company from any damage or cost incurred by such third party and the Client undertakes to cover any losses or claims incurred on his/her behalf by any such third party.
In case the Client has authorized a third party, it is agreed that in the event that the Client wishes to terminate the authorization, it is the Client’s full responsibility to notify the Company of such decision in writing. In any other case, the Company will assume that the authorization is still ongoing and will continue accepting instructions and/or Orders given by the authorized third party on behalf of the Client. (Emphasis added)
c) “To sum up,
You chose to have Top-Binary-Signals.com (TBS) manage your Eclipse Finance account. You have authorized TBS (aka Third Party) to become your Eclipse Finance Money Manager by signing and submitting the MAS LPOA
You have digitally signed Terms and Conditions of Eclipse Finance stating that you indemnify Eclipse Finance from any damage or cost incurred by such third party and that you will undertake to cover any losses or claims incurred on your behalf by any such third party
You have signed MAS LPOA which states, that Eclipse Finance and its officers, employees and agents will not control Money Manager’s actions; and are in no way responsible for any loss to you caused by the actions of Money Manager and that Eclipse Finance doesn’t endorse the operating methods of Money Manager.”
In response, Mr. C’s legal representative replied to each point:
A) With regard to the alleged “criminal” hack into TBS which led to the transactions which reduced Mr. C’s account balance to $0, those specific transactions were only placed on April 21, 2016; 4 days after the MAS expired on its own terms and after Mr. C advised in writing and by phone on numerous occasions that a) TBS’s authority to trade his account had expired, b) that he no longer authorized their use of his trading account, c) that his account credentials be provided to him and d) that he had already requested a withdrawal of funds in his account. As such, TBS should have never had access to Mr. C’s account by the time “criminal” hack occurred.
B) With regard to Mr. C’s use of a third party to manage his account, the agreement between he and TBS, which you personally authorized and approved, expired on its own terms on April 17, 2016. Moreover, Mr. C clearly and repeatedly contacted Eclipse Finance via email and phone to reiterate that TBS was no longer authorized to trade his account. As you so nicely pointed out in your citation to section 2.4 of your Terms & Conditions,
“In case the Client has authorized a third party, it is agreed that in the event that the Client wishes to terminate the authorization, it is the Client’s full responsibility to notify the Company of such decision in writing.”
As Mr. C sent numerous emails before the trades which depleted his account occurred, he provided ample and conforming notice of his revocation of TBS’s authority to trade his account. Any losses which occurred by TBS’s unauthorized actions are Eclipse Finance’s responsibility.
C) Your summary of the facts seems is accurate except for the fact that on April 17, 2015, TBS’s authorization to trade Mr. C’s account ceased as a function of the MAS, itself, and Mr. C’s numerous emails and voicemails.
As such, your argument is wholly irrelevant. As of April 17, 2015, Mr. C’s account was no longer a managed account. In effect, Eclipse Finance gave TBS unauthorized access to Mr. C’s account, access which ultimately led to it being wiped out.
This is without considering that there is no real live account to manage, and in the case of binary options, no method of a regulatory official or court being able to check where any prices or execution practices were applied, or where the prices were obtained for each trade as, unlike an FX trading platform, there is no means of matching any prices with that of a live market to establish if any nefarious attempts at manipulation took place.
Put simply, binary options brands have a free reign to fabricate trading activity as they are the ones creating the ‘market’ as there is no connectivity to a live financial market. Therefore any attempt by a financial markets regulator or litigation hearing to establish this by checking any records would likely be fruitless.
Mr. C’s representative then made a demand for the return of €200,000 to Mr. C as follows:
For the moment, let’s assume that both Eclipse Finance and TBS are bona fide parties in the legitimate business of facilitating the trading of and managing accounts in binary options, respectively. This means that the €3,476,140 actually existed in Mr. C’s account on April 17, 2016 when the MAS expired.
Therefore, Mr. C’s damages in this matter are €3,476,140 and Eclipse Finance is wholly responsible for not respecting the terms of the MAS or the repeated wishes of Mr. C to terminate TBS’s authority over his account.
Now let’s assume that Eclipse and TBS are like the vast majority of binary options brokers that masquerade as legitimate financial services firms when they are really a criminal enterprise intent on soliciting funds from clients with no intention of ever returning those funds and/or honoring withdrawals.
Given Eclipse Finance’s and TBS’s silence in the face of Mr. C’s repeated requests to terminate TBS’s authority and access to his account, the explanation that he could only withdraw €500,000 per week and the untimeliness of the ‘criminal’ hack, I’m pretty sure this assumption is the correct one.
The facts of this matter are clear and convincing. However, I will share some additional facts that are worthy of your consideration:
a) Mr. C is a man of means who is intent on committing whatever capital is necessary to recover his funds AND see that justice is served. Should it be warranted, Mr. C has instructed me to contact all relevant regulatory and criminal authorities in the jurisdictions where you operate and reside to investigate this matter and the fraud which we believe you have perpetrated on Mr. C and others.
b) I have successfully represented hundreds of clients who have been wronged or aggrieved by brokers such as Eclipse Finance and have even forced such entities to shut their doors entirely. Rest assured, I know what I am doing and have the means and acumen to reveal your activities to the appropriate parties.
c) Mr. C, through my introduction, has already provided all documents pertaining to this matter to several, major FX and Binary news sources, one of which has vowed to launch a full-scale investigation into Eclipse Finance’s and TBS’s activities pertaining to this matter and will publish those results should Eclipse Finance not resolve the matter with Mr. C first. I promise you, it will be damning to your ongoing ‘business’ activities and destroy your credibility.
To that end, and with the hope of amicably resolving this matter without the need for legal, criminal and public relations escalation, demand is hereby made for €200,000 to be wired to Mr. C’s bank account.
This demand was ignored. FinanceFeeds has reviewed an extensive string of email conversations between Mr. C, Eclipse and TBS in which tireless attempts to recover his money were made, to no avail. It is worthy of note that at this point Mr. C was asking solely for his principal capital, not the profits.
During the trading of the account, Eclipse Finance showed that Mr. C had made some ‘winning’ trades (shown in the screenshots of his trading account below) generating a massive ‘profit’ taking his original deposit of €200,000 to €3,476,140.
This is likely to have been a red herring in order to maintain Mr. C’s interest. Indeed, if he had won trades, and paid commission for a brokerage which is common practice in legitimate financial markets activity, then where would the problem be in releasing his profits or some of his principal capital? It is always worth considering that tremendous value increases in binary options accounts which are not connected to a live market are to be viewed with a granule of salt.
Eclipse Finance is a brand which uses one of the 6 major binary options platforms and FinanceFeeds has reason to suspect that Top Binary Signals (TBS) and Eclipse Finance are one and the same company, as they have been cited by various forums as having engaged in aggressive advertising campaigns on various sites in unison.
The company is registered in St Vincent and the Grenadines, and unfortunately without recognized regulation or a strong legal framework, efforts to recover any funds from companies of this type in unregulated regions is likely to be a very difficult, long and drawn out matter.