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Screenshot of a breaking news alert e-mail from Q2 2017
The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge John Z. Lee of the U.S. District Court for the Northern District of Illinois entered an Order of Final Judgment by Default (Order) that requires Defendants Vault Options, Ltd. (Vault) and Global Trader 365 (GT 365), two Israeli web-based binary options firms, to jointly and severally pay a $3 million civil monetary penalty and $1,587,731 in restitution to their defrauded customers. The Court’s Order also imposes permanent injunctions and permanent trading bans against the two entities.
The Order, entered on July 20, 2016, and stemming from a CFTC Complaint filed on February 2, 2016, finds that Defendants violated the Commodity Exchange Act’s ban on off-exchange options trading and off-exchange swaps trading by offering to enter into and entering into binary commodity option contracts with retail U.S. customers. The Order also finds that Defendants defrauded customers by making false representations in their solicitations and misappropriating their funds.
The Order finds that binary options are financial products that allow customers to predict whether the price of a certain commodity, index or foreign currency “asset” will go “up” or “down” at a future date and/or time. According to the Order, neither of the Defendants was registered as a designated contract market, exempt board of trade or bona fide foreign board of trade, and the binary options transactions the Defendants offered therefore constituted unlawful off-exchange options and unlawful swaps.
According to the Order, Defendants nonetheless solicited and accepted at least $1.6 million from U.S. customers from 22 states for the purpose of entering into these unlawful off-exchange binary options contracts.
The Order further finds that Defendants defrauded their customers by, among other acts and practices, knowingly or recklessly claiming that customers can make large profits, when, in fact, many Vault and GT 365 customers quickly lose most of their funds trading Defendants’ binary options. The Order further finds that Defendants falsely represented to customers that their funds were insured against losses, failed to respond to customer inquiries about the status of their funds, and ultimately misappropriated the customers’ funds.
The Order also finds that Defendants operated as unregistered Futures Commission Merchants by soliciting and accepting binary options orders and funds from U.S. customers and by confirming the execution of such orders.
It is worth noting the only legal venues for U.S. retail traders to transact in binary options are IG’s Nadex based out of Chicago and Cantor Exchange based out of New York.