The amount of money taken annually from investors in a type of online investment scam has rocketed from £6,200 in 2012 to £27m in 2017, an anti-fraud watchdog has revealed.
The specific type of scam responsible is that of binary options, also known as fixed-odds betting and, according to Action Fraud UK, it is often a scam carried out by overseas organised crime gangs who target vulnerable UK victims through online forums such as social media.
Action Fraud is the UK’s national reporting centre for fraud and cyber crime and works alongside the National Fraud Intelligence Bureau (NFIB), part of the City of London Police, the national policing lead for fraud.
It found that the total sums lost to this type of fraud since 2012 currently stands at £61m.
It is an unsophisticated system, which is part of the lure to investors, who do not need to be experienced gamblers to participate.
It requires investors to bet on an outcome where there are only two possible results, usually in the form of betting on the price of a stock, share or asset to go up or down by a specified point in time.
The house always wins
An example might be for bitcoin to rise or fall over the next 24 hours.
If you’re right, you’ll get your stake back with profit, typically between 50% and 90% of your stake; naturally, if you are wrong, you’ll lose your stake.
And as with most forms of gambling, because the ‘bank’ never offers 100% profit, the odds are always in its favour.
Binary options first appeared around ten years ago, but have grown massively in that time, and are viewed with grave mistrust by a wide number of regulators around the world.
They are banned outright in Israel, Belgium and Canada, while other jurisdictions are seeking to clamp down on them.
Part of the problem is one of classification, with some jurisdictions classifying them as games of skill, hence regulated by gambling bodies, and others seeing them as investment scams.
In the UK, responsibility for regulation of such schemes is now passing from the Gambling Commission to the investments regulator, the Financial Conduct Authority (FCA).
Just a few weeks ago, UK consumer group Which? slammed binary options as the “biggest investment con”, saying that they were not really investments but a very one-sided form of gambling.
“There are some legitimate companies selling binary options, but even the genuine products should be considered gambling, not investments,” Which? said in its study Inside binary options – Britain’s biggest investment con.
Not an investment but a rigged ‘scam’
Which? said: “Most binary options brokers aren’t really brokers at all. When you trade with a real broker, your buy trade will effectively be paired against another trader who wants to sell, or vice versa, and you’ll be charged a modest fee for the service.
“If you win, you’ll trade more, and the broker will earn more commissions. Instead, binary options companies work more like bookmakers.
“Customers bet directly against the house. Your losses are their gains, and vice versa. They might let you win in the early stages, but only to encourage you to bet more. They know it’s the house that will win in the end.
In a report for Sky News, broadcast last night, NFIB’s Detective Sergeant Alex Eristavi said that people “are being defrauded on a daily basis”.
“There is no typical victim,” he told the broadcaster, “they are just ordinary folk like you and me. The youngest one is 19 years old, that we have recorded so far, and the oldest is 93, so it’s a wide spectrum.
“It’s fair to say with binary options coming into play, the average victim’s age of investment fraud has dropped because previously it was over 60 and now it’s early 50s.
“It’s because the younger generation are taking part in this activity, and it could be easily explained as social media is a lot to do with it, the advertisements and the pop ups etc.”
Real victims, real losses
In its report, Which? gave the example of ‘James’ who had traded through a broker named Magnum Options, now defunct.
Says Which?: “The tips from James’s broker were lucrative at first, but when he tried to cash out he was denied and the quality of his tips slumped. He decided to bet against his broker’s recommendations – and his account balance kept rising.”
Within a very short period of time, ‘James’ had lost £60,000.
Perhaps even more cruelly, last night’s report on Sky News featured a victim called Frank Thornburrow, from Kent, who lost his life savings when he invested in binary options.
“The last couple of years haven’t been easy,” he said.
“I lost my daughter couple of years ago when she died of cancer. I retired and I was looking for a way of making money so I tried binary because it looked good.
“And basically it was a big con, it didn’t work out and I lost a lot of money. I’ve ended up with a triple bypass, so that’s the impact it’s had on me.”
Action Fraud is now concerned that impecunious students are turning to binary options, lured by the promise of big wins on one flip.
For those paying for hefty losses, action by the FCA will come too late, but it is to be hoped that the regulator can clamp down on what would appear to be a wicked industry that preys on the gullible and vulnerable ruthlessly, and without mercy.