Some scammers are targeting binary options customers with follow-up frauds, such as recovery scams and IRS impersonation scams, according to FINRA.

FINRA issued an alert to warn anyone involved in binary options trading — specifically through unregistered non-U.S. companies offering binary options trading platforms or services — to be on guard for potential follow-up frauds. 

In November, FINRA issued an investor alert after it received a number of calls through the FINRA Securities Helpline for Seniors that suggested that scams involving binary options and their trading platforms abound.

The newest alert focuses on follow-up scams that tend to target investors who may be unwittingly involved in “shady” binary options businesses.

A binary option is an “all-or-nothing” proposition in which the payout will depend entirely on the outcome of a yes/no proposition. Whereas, a conventional option is an agreement that gives you the right to buy or sell a security for a fixed price during a set period of time, at which point the option expires.

“When a binary option expires, it makes either a pre-specified amount of money or nothing at all — and if the latter happens, you lose your entire investment,” FINRA explains.

Some binary options are listed on registered exchanges (regulated by the Securities and Exchange Commission) or traded on a designated contract market (overseen by the Commodity Futures Trading Commission).

The problem is that an increasing number of binary options are sold through online platforms that do not comply with U.S. regulations and can be fraudulent, as FINRA, the SEC and the CFTC have warned.

Investors with binary options accounts on these suspect platforms may be targets for follow-up frauds, like advance fees or IRS impersonators.  

FINRA is aware of instances in which a customer of a binary options platform hears from individuals who claim they can help the customer get back lost money — but an advance fee applies.

According to FINRA, hallmarks of these schemes generally include urgent correspondence and high-pressure calls that specifically refer to a customer’s binary options accounts; claims that the caller is with, or acting at the behest of, a U.S. government agency; and subsequent communications with official-looking documents presented as “proof” that money is available for investors to recover — for a fee. 

FINRA warns that “you should be wary of any person or organization claiming to know about your binary options accounts and offering to help return money to you.” 

FINRA is also aware of another scam that involves phone calls purportedly from an IRS representative.

“The IRS imposter claims that you owe money in taxes because of your binary options trading, and may threaten to bring in police or other government agencies if you do not pay up immediately,” FINRA explains. “The IRS imposter asks for your debit or credit card number, or may pressure you to pay with a prepaid debit card.”

However, the IRS makes clear that it never calls taxpayers and demands that they wire or send money — instead the IRS sends a written notification of any tax due through the mail.

FINRA included an investor checklist in its newest alert that investors should look at before getting involved in binary options trading — and before sending any money.

Investor Checklist

  • Check the CFTC’s website to see if the binary options trading platform is a designated contract market. If it is not registered, do not do business with the organization or individuals associated with it.
  • Check the SEC’s EDGAR system to see if the binary options trading platform has registered the offer and sale of the product with the SEC. 
  • Check the SEC’s website regarding exchanges to determine if the binary options trading platform is registered as an exchange. 
  • Check FINRA BrokerCheck and the National Futures Association’s Background Affiliation Status Information Center (BASIC) to determine the registration status and background of any firm or financial professional that you are considering.

— Related on ThinkAdvisor: