For Some Reason Regulators Don't Want People Gambling Online Using Binary Options Sold Through Spam Emails From Cyprus

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Today in when prediction-markets-are-outlawed-only-outlaws-will-run-prediction-markets news, the SEC and CFTC have sued Banc de Binary, a prediction market that sounds like it's no Intrade:

Banc de Binary solicited customers in the United States. ... It broadly advertised its websites to individuals in the United States through YouTube videos, spam emails, and other internet-based advertising.

Also it's a "Cypriot and Israeli company ... based in the Republic of Cyprus and regulated by the Cyprus Securities and Exchange Commission ('CySEC')," so even if they are keeping your money in an escrow account at a bank it's still not safe, ZING.

I dunno, is Banc de Binary a scam? I like the name: you say "prediction market," they say "binary option," someone says "online betting," but they all mean roughly the same thing. And the website has I think median levels of eye-bleeding scrolling overpromising hyperbolic red-and-green flashing misery for an online trading site. "Spam emails" sounds bad but for the rest BdB advertises 24/7 live customer support and the SEC backs them up, saying as though it's a bad thing "Banc de Binary also solicited potential investors in the United States by sending them emails, calling them on the telephone, and chatting with them via instant messenger over the Internet."

Also the SEC's (and CFTC's) allegations about the harms of BdB are pretty meh. E.g.:

For example, after reviewing a Banc de Binary YouTube video and Banc de Binary’s website, a man residing in Nevada opened a trading account with Banc de Binary in July 2012. He deposited $500 into his Banc de Binary account, and the next day, Banc de Binary gave him a $500 trading bonus. In late July and early August 2012, he received a series of emails from a Banc de Binary representative urging him to deposit more money into his account in order to qualify for a “managed account,” which provided special trading signals and trading advice. In October 2012, he deposited an additional $500 into his Banc de Binary trading account, and Banc de Binary again matched his deposit with a $500 bonus. Between July 2012 and December 2012, he entered into about 880 binary options transactions using several of Banc de Binary’s trading platforms. Among other binary options, he purchased binary options based on stock.

That's the last we hear of Joe Nevada. He put $1,000 into an account, got $1,000 in free money, and used it to trade binary options, as he'd intended. That's it. Did he lose the full $1,000? ($2,000?) Did he get it all back? Did he make money? Who knows? Sounds like a satisfied customer though possibly also an FBI agent. Other stories are more disturbing - "Banc de Binary actively encouraged another investor in Banc de Binary options to deposit additional funds into his Banc de Binary trading account even after he informed the Banc de Binary representative that he was unemployed and had less than $1,000 in his checking account" - though even there no one comes out and says that those investors were actively fleeced. No one even says, what would surely be true, that trading binary options may be an inappropriately risky activity for many online retail customers.

Of course they don't need to: Banc de Binary, by offering binary options (which the SEC thinks might be securities and the CFTC thinks might be commodity option contracts1) without registering them with the SEC or registering as an FCM with the CFTC, has broken the law even if its purposes were entirely altruistic and its contracts were safe, efficient, and mispriced in investors' favor.

So, fair enough, they should have registered! They might object, though, that registering a prediction market is a bit troublesome in the U.S., what with regulators turning down applications to list various prediction-market binaries on general Puritan anti-betting grounds. So reputable futures exchanges can't provide retail prediction markets. And reputable not-quite-legal sites like Intrade, which by all accounts (including mine!) was a perfectly reputable, low-pressure, non-spammy prediction market, was shut down by the CFTC last year. While Banc de Binary got an extra six months to sell to Americans.

The SEC and CFTC issued a joint investor alert on "Binary Options and Fraud" that is full of horror stories:

The first category of alleged fraud involves the refusal of certain Internet-based binary options trading platforms to credit customer accounts or reimburse funds after accepting customer money. These complaints typically involve customers who have deposited money into their binary options trading account and who are then encouraged by “brokers” over the telephone to deposit additional funds into the customer account. When customers later attempt to withdraw their original deposit or the return they have been promised, the trading platforms allegedly cancel customers’ withdrawal requests, refuse to credit their accounts, or ignore their telephone calls and emails.

The second category of alleged fraud involves identity theft. For example, some complaints allege that certain Internet-based binary options trading platforms may be collecting customer information such as credit card and driver’s license data for unspecified uses. If a binary options Internet-based trading platform requests photocopies of your credit card, driver’s license, or other personal data, do not provide the information.

The third category of alleged fraud involves the manipulation of the binary options trading software to generate losing trades.

Did Banc de Binary do those things? Who knows! Nobody's saying that it did. They're just saying, simultaneously, that (1) some internet binary-options platforms might do those things and (2) this internet binary-options platform is being shut down and sued for illegal activity.

I'm reasonably sure Intrade didn't do those things though.2 It too was shut down for illegal activity, essentially the same illegal activity as Banc de Binary is accused of. And rightly so, more or less: it was acting illegally! So there's that. You can't sell predictions without a prediction-selling license. But those are hard to come by, lots of people seem to be interested in the prediction-buying game, and the internet is pretty big, so the results were predictable. You shut down the good prediction markets, and the so-so ones come in to fill up the gap. You shut down the so-so ones and, I dunno, I hope all those online gamblers are reading the SEC's investor alert.

CFTC Sues Prediction Market [WSJ]
SEC Warns Investors About Binary Options and Charges Cyprus-Based Company with Selling Them Illegally in U.S. [SEC, and complaint (pdf)]
CFTC Charges “Prediction Market” Proprietor Banc de Binary with Violating the CFTC’s Off-Exchange Options Trading Ban and Operating as an Unregistered Futures Commission Merchant [CFTC, and complaint (pdf)]
Investor Alert: Binary options and Fraud [SEC/CFTC]

1.They're both right, of course: binaries on stocks are SEC regulated; binaries on commodities, stock indices, and most miscellanea are CFTC regulated.

2.I mean, y'know. Reasonably. Certainly they gave me my money back when I asked and didn't steal my identity, though I did lose most of my (small) investment by trading. That really did seem like my own fault though. I mean I bet Rick Perry would be president! Can you imagine?

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