FX scams: CFTC’s Kristin Johnson speaks out against ‘Pig Butchering’ schemes
“Schemes like this one are especially problematic because they target people who are seeking connection and are susceptible to trust those that they believe they’ve connected with. The Commission has released a number of advisories warning against frauds of this nature that are seen on online dating and social media platforms.”
CFTC Commissioner Kristin Johnson has called for caution from customers before sending funds to any person or third-party platforms as a result of online relationships.
The request comes on the heels of a recent civil enforcement action by the Commodities Futures Trading Commission against California resident Cunwen Zhu, who allegedly used a type of romance fraud known as a “Pig Butchering” scheme to defraud customers through digital asset and foreign currency exchange (forex) solicitations.
‘Pig Butchering’ because scammers “fatten” victims with friendly/romantic falsehoods
The Pig Butchering scheme consists of fraudsters cultivating a friendly or romantic relationship with a potential customer to “fatten” them up with falsehoods, before soliciting the customer to participate in a fraudulent financial opportunity, in this case, fraudulent digital asset and forex trading.
The CFTC complaint alleges that from approximately April 2021 through March 2022, Zhu and Justby accepted and misappropriated over $1.3 million from at least 29 customers as part of this scheme.
Cunwen Zhu is charged with fraudulently soliciting funds from customers for the purpose of trading forex or digital assets, and then misappropriating those funds.
“We see consistent if not increasing evidence of such schemes”
The scheme followed a similar pattern: solicitors contacted potential customers via social media platforms and established a rapport through frequent communication, including sharing pictures themselves in expenses locales or with expensive items, such as luxury cars. After building a relationship and gaining the trust of the customers, the solicitors would claim they were earning huge profits trading forex and/or digital assets, based on inside information.
They would then offer to share this knowledge to assist the consumer with trades by asking the consumer to download a fraudulent trading app and set up a “trading account.” At this point, Defendants would have customers wire funds to various accounts associated with Justby, where funds would go on to be misappropriated and used for other purposes. All the while, the customers’ “trading accounts” would show fictitious profits and trades, but, in reality, no trading was taking place.
CFTC Commissioner Kristin Johnson said this is a first-of-its-kind action in a number of ways, but, there is no reason to believe that this will be the last pig butchering case.
“As I have stated previously, these types of schemes and others that target vulnerable investors are not uncommon and, in fact, we see consistent if not increasing evidence of such schemes. Schemes like this one are especially problematic because they target people who are seeking connection and are susceptible to trust those that they believe they’ve connected with. The Commission has released a number of advisories warning against frauds of this nature that are seen on online dating and social media platforms.
‘Pig Butchering’ scams at the heart of MetaQuotes’ suspension from the Apple Store
Last year’s suspension of MetaQuotes products from the Apple Store – the iOS versions of MetaTrader 4 and MetaTrader 5 – were directly tied to the ‘pig butchering’ scams, according to an Apple spokesperson and a Forbes investigation.
It seems that Apple decided to suspend MetaQuotes apps even though the had reportedly taken action of its own a couple of months ago. The firm had allegedly made it harder for white-label providers to onboard clients in order to prevent its use by scammers.
The iOS versions of MetaTrader 4 and MetaTrader 5 were reinstated in March 2023 after being suspended for months due to the abovementioned security concerns and several fraud cases using MT4/5.
According to MetaQuotes, during the lengthy process of restoring the apps, the trading platform provider communicated to Apple extended explanations surrounding operational technicalities and provided further insights as requested.
All matters have been resolved and the iOS applications of MetaTrader 4 and MetaTrader 5, fully compliant with Apple’s requirements, are now available for download from the App Store, the firm stated.
The suspension of MT4/5 from the Apple Store was one of the hottest topics of 2022 and led many brokers to reevaluate their reliance on one single trading platform provider. The popularity of MetaTrader led to standardization, making it easy and cheap to set up the technology part of a brokerage. This helped create a large FX/CFD retail market that opened up trading to everyone.
This, however, has weakened brokers’ differentiation capabilities which is an increased risk for them. It also led to more bad actors, who churn clients via lead lists because clients are loyal to the platform, not the broker.
Apple was never public about the reasons for suspending the products by MetaQuotes, but it came on the heels of extensive reporting and police investigations about FX scams using MT4 and MT5.
One of the most high profile cases was covered by Forbes in September 2022 about super scam ‘Pig Butchering’ and how it used MetaTrader to defraud investors. Apple spokesperson Adam Dema told Forbes the company was investigating complaints about MetaTrader and would take additional action to protect App Store users if necessary.
Prior to the suspension, MetaQuotes was reportedly trying to tackle the abuse by making it harder for white-label providers to onboard clients.