Calling potential clients without a BD license got Banc de Binary in trouble.

A Cyprus-based company has agreed to pay the Securities and Exchange Commission and Commodity Futures Trading Commission $11 million to settle charges levied in 2013 that it failed to register as a broker-dealer in the United States before soliciting investors to purchase binary options.

The SEC said Wednesday that Banc de Binary Ltd.; its founder, Oren Shabat Laurent; and three affiliates agreed to jointly pay $7.1 million in disgorgement and $1.95 million in penalties to the SEC as well as $2 million in penalties to the CFTC, which filed a parallel action. 

A judge in the U.S. District Court for the District of Nevada has established a Fair Fund that will be administered by the National Futures Association to compensate harmed investors, according to the SEC.

The SEC filed a complaint in 2013 against Banc de Binary Ltd., Shabat Laurent, and the affiliates alleging that they failed to register the offering before soliciting U.S. customers through YouTube videos, spam e-mails and other Internet advertising. 

They failed to register as a broker-dealer before communicating directly with U.S. clients by phone, email and instant messenger chats.

When the complaint against Banc de Binary was filed in 2013, the SEC’s Office of Investor Education and Advocacy and the Commodity Futures Trading Commission’s Office of Consumer Outreach issued an Investor Alert warning investors about fraudulent promotion schemes involving binary options and binary options trading platforms.

The alert warned that binary options differ from more conventional options contracts because the payout typically depends entirely on whether the price of a particular asset underlying the option will rise above or fall below a specified amount.

Banc de Binary, Laurent and the affiliates also agreed to be suspended from the securities industry for a year and permanently barred from issuing any penny stock offerings.