Dispute among shareholders, near-sale to a rival Binary Options broker.
LeapRate Exclusive… After contact with several of the behind the scenes players in the drama leading up to the closure this weekend of leading binary options broker iOption, LeapRate has learned more about the circumstances and events leading to the unfortunate shutdown.
First, following the large amount of feedback and questions we’ve received to our original article on iOption closing, especially from iOption (ex) clients, we’d like to state that based on what we’ve heard, all client money is indeed intact, and as such clients of iOption should expect to receive all their money back in full, although it might take some time to sort out.
In any event, by virtue of iOption’s parent company Scorpid Trading Ltd being a CySEC CIF licensed company, most clients should be covered up to €20,000 each via the CySEC Investor Compensation Fund (some clients might be covered only to about €3,000, but we doubt that many clients had more than that on deposit). However since Scorpid just received its CIF license barely a week before iOption was closed, it remains to be seen if they had formally joined the Investor Compensation Fund or not. And, as far as we can tell, this is the first instance of a CySEC CIF licensed company suddenly shutting in this manner since last spring’s EU bailout of Cyprus, so it also remains to be seen how this will work exactly.
Employees and affiliates of iOption might not end up being so fortunate, as they’ll be getting in line after other creditors of iOption.
So what happened?
It seems as if iOption’s troubles began a few months ago, not in operations but behind the scenes in a dispute among the owners. A large outside investor (as we understand, a large media company) was brought in well after iOption was established in 2010, putting fresh money into the company. After a while that new investor had a change of heart and decided that they didn’t want to support the company any more, and wanted out. (Likely as iOption accrued some losses, as it pursued a growth strategy instead of immediate profit, not unusual for a company at that stage). The investor apparently began to take legal action against the other owners, leading to the other owners looking for a replacement investor. When none materialized, and with the company requiring more capital, the owners looked to sell the company, with the most obvious buyer being a rival Binary Options broker.
We understand that some serious talks and due diligence did occur, with a large rival Binary Options broker (we’ve been asked to withhold the name of that broker), and the sides believed that they were very close to a deal — so close that management and certain employees were told at one point last week that they would likely be working for that rival broker soon. But a large enough offer never developed from the rival broker, no deal was struck and the talks broke up this past weekend — leaving management and the owners of iOption with no alternative but to shut down the company.
There was some last-ditch scrambling over the weekend to save the company, but apparently that didn’t work as well.
This is indeed somewhat of a sad story, but does not seem to contain any of the ‘funny business’ or fraud that has accompanied the sudden closure of some other online brokers. Things just didn’t work out, and hopefully clients will get their money back soon. The story also probably doesn’t have wider implications for the binary options sector, which still continues to expand rapidly worldwide.
One last thought, which was brought up by one of our readers in the Comments to our original article on iOption closing. And that is with regards to CySEC, Cyprus’ financial regulator. As we wrote earlier, CySEC had just formally granted iOption’s parent company Scorpid Trading Ltd a CIF license (License # 218/13) on October 30, barely a week before iOption closed its doors.
The timing might just be a coincidence, especially given that the application and approval process to receive a CySEC CIF license can take several months. But CySEC does not come out of this looking very good. From the outside, it appears as if they gave their ‘all is fine here’ signal just days before closure, giving people the impression that they really don’t know what is going on at their regulated companies. Regulated brokers can (and sometimes do) shut their doors in any jurisdiction, but for it to happen just days after receiving a license in the fist place certainly brings up some questions.
We wonder if CySEC will come clean with what happened here from their perspective, and whether or not they might look at modifying some of their methods and practices.
We’ll be back with more details as we get them….