What is Happening in the World of Forex Fraud: Six Stories that May Amuse

There is never a dull moment in the world of forex fraud. These summer months, however, seem a bit like the proverbial calm before the storm. Perhaps, it was time for everyone to take a breather, rest up, unwind, and prepare mentally and physically for the “Big Showdown” – the annual fleecing of the general public during the Christmas Holiday Season. Yes, there have been the normal press releases about regulators across the globe arresting, trying, and fining forex fraud perpetrators, but the volume knob seems to have been turned down a notch. Do not be fooled. Forex fraud never sleeps!

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The major stories that had staying power and provided interesting commentary for a variety of forex fraud pundits covered the conventional categories of the big, the bad, and the ugly, while a few noteworthy efforts to protect, incarcerate, and shut down a number of shady business practitioners also offered up amusing storylines. At the end of the day, however, the third quarter of 2017 witnessed a host of scam artists and a trail of victims that lost their life savings or were in the process of doing so. Finding and jailing crooks is one thing, but recovering lost investor funds rarely is a possibility.

The stories we have chosen to showcase in this article are as follows:

1)    Big Banking Banksters: HSBC is in the news

2)    Crypto-currencies: Are Bitcoin and related ICOs the latest scam?

3)    Binary option victims beware – Scammers want a second shot

4)    The CFTC goes after the crooks, one at a time

5)    An Israeli forex fraudster gets the book thrown at him

6)    Canada launches an Investor Protection Clinic, but will it work?

Did any of these storylines jump off the page for you? Each one is a bit of a “Ho Hummer”, but, in each one, millions, even billions in some cases, were lost. Many of the criminals behind these capers have never been apprehended. In the case of our largest international banks, no member of executive management has been jailed or found guilty of causing the Great Recession, but it appears that a few individuals down deep in these organizations may have a hard time of it. Crypto-currencies may still amaze, but the pain of loss may be delayed, as a host of concerned citizens shout scam. Time will definitely tell a story of horror when and if this house cards collapses in a heap.

Our counsel has always been “Don’t be a victim”! Self-preservation also always begins with awareness, but it does not stop there afterwards. One must continue to be vigilant, resisting one’s natural instincts for greed, while being suspicious of unsolicited attempts to gain our attention. The first step in the crook’s playbook is to “set the hook”, and like the wily catfish that has always escaped the fisherman’s net, your mind must be pre-programmed to step back, observe, evaluate, and then move to safer ground.

With these thoughts in mind, let’s begin our walk down the latest lane of efforts by the organized con men among us:

1)    Big Banking Banksters: HSBC is in the news

Some have called it the greatest forex scandal in history. No, I am not talking about how big banks across the planet marketed nearly worthless and illiquid mortgage-backed securities to unsuspecting investors, pension funds, and hedge fund managers in every market in the world, thereby bringing about the greatest business downturn since the Great Depression. Aside from $10 billion fines, no one has gone to jail for these offenses. The major scandal followed after the pain of the Great recession set in, and the pressure to find new earning streams took its toll upon lower management and trading staff.

The crime was rate fixing in the foreign exchange market. More than three years ago, the U.S. Attorney General, Loretta Lynch, announced that, “Starting as early as Dec 2007, currency traders at several multinational banks formed a group dubbed ‘The Cartel.’ It is perhaps fitting that those traders chose that name, as it aptly describes the brazenly illegal behavior they were engaging in on a near-daily basis. The actions of these traders inflated the banks’ profits while harming countless consumers, investors and institutions around the globe — from pension funds to major corporations, and including the banks’ own customers.”

Did these “banksters”, a term that has evolved to describe a member of the banking industry seen as profiteering or dishonest, get the message? Did the executives with HSBC, Citicorp, UBS, JPMorgan Chase, Barclays, and Royal Bank of Scotland clean house and change direction? Investigations have continued, and it now appears that individual transactions that involve what is known as “front running” only add to the degree of the scandal. In the case of HSBC, a new $175 million fine has been levied, and two “sacrificial lambs”, the offending traders at hand, have been thrown summarily under the bus.

In the parlance of stock trading, the practice of “front running” is better known as insider trading, a crime punishable by law in a market that is heavily regulated. Foreign exchange, on the other hand, is highly unregulated. No central trading floor exists. Banks rule the process as intermediaries in the Interbank Market, but they are supposed to maintain an independent fiduciary posture during the conduct of their trades. Self-dealing in advance of a market changing event may appear unethical within a forex context, but current law is not nearly as clear cut, as with securities violations.

The case at hand revolves around the actions taken by Mark Johnson, HSBC’s global head of foreign exchange cash trading in London, and his colleague, Stuart Scott in October of 2011. An HSBC client, a firm named Cairn Energy, had sold an Indian subsidiary and wished to transfer the proceeds of $3.5 billion to British Pounds. The two co-conspirators are accused of buying large Pound positions before the major transfer was to take place, disparaging their client in the process, and then reaping the benefit of $8 million in illicit profits.

The case is being tried in New York and is the first of its kind. Currency traders across the globe will be watching these proceedings intently. Per one reporter, “Prosecutions or enforcement actions against individual forex traders are rare, perhaps because the U.S. spot forex market is so lightly regulated. Strikingly, what regulations do exist do not in fact prohibit the conduct for which Johnson was indicted. The Johnson prosecution in the Eastern District of New York therefore will test whether the government can turn sharp dealing and deception in the unregulated institutional spot forex market into criminal fraud.”

     2)   Crypto-currencies: Are Bitcoin and related ICOs the latest scam?   

As quickly as articles have circulated about the millions that investors have made in the recent rapid appreciation spiral of Bitcoin and other crypto-currencies, press accounts have also ramped up with stories of fraud and regulatory intervention. Of particular interest is the wave of Initial Coin Offerings (ICOs) that have taken the venture capital industry by storm. The People’s Bank of China, however, declared ICOs illegal, and “Regulators in the US, Singapore, Canada, Malaysia and Hong Kong have also fired warning shots that if tokens look like securities, they will be treated as such.” The CFTC recently shut down what it called a “Bitcoin Ponzi scam”, and South African authorities reacted similarly to Bitcoin mining offerings, labeling them as “Ponzi/multilevel marketing/network marketing schemes, or scams.” Tread softly in these unregulated territories.

     3)   Binary option victims beware – Scammers want a second shot

A new website has appeared, supposedly managed out of New York but with actual roots in Israel, that offers victims of binary option fraud to retrieve a portion of their losses through the processing of Visa/MasterCard chargebacks, all for a minimal fee of $750. It is very unclear as to whether deadlines for such actions have expired, but the firm is marketing its services to assist the hundreds of thousands of victims that have lost tens of billions of dollars. Before you buy into the altruistic nature of these efforts, one must accept that these new firms have “massive connections with the Israeli b-book and binary options sector,” as one investigator quickly pointed out in his revealing account.

      4)  The CFTC goes after the crooks, one at a time

The CFTC, as a rule, comes down hard on phony forex fund managers that solicit funds far and wide, never trade, but live lavish lifestyles just the same. In its latest widely publicized case, it has moved against “Thomas Lanzana, individually and d/b/a Unique Forex, Nikolay Masanko, Blackbox Pulse, LLC and White Cloud Mountain”. As is typical in these cases, Lanzana recently stopped processing all requests for client withdrawals, triggering complaints and action from the CFTC. Legal filings did not disclose an estimate of total losses.

     5)   An Israeli forex fraudster gets the book thrown at him

Do fraudulent forex fund managers, like the one above, ever go to jail? It appears that one Israeli citizen must finally pay for his sins: “Fadi Ewiess, a 39-year-old from the Arab village of Reineh, near Nazareth, was sentenced to three years in US prison for operating a website called Golden Bridge FX, which he used to solicit money from investors abroad. Instead of using investors’ money to trade in actual forex markets, Ewiess spent some of the money on personal expenses and gambling and used the rest to pay back earlier investors.” Ewiess had bilked investors out of $5 million, although $2.1 million was recovered.

     6)   Canada launches an Investor Protection Clinic, but will it work?

In an action that sounds like closing the barn doors after al the horses had already departed, a Canadian law school has announced its launch of an Investor Protection Clinic “that will provide free legal advice to investors who believe that their funds have been mishandled.” Will writing letters to foreign fraudsters help Canadian victims get their money back? Canadian citizens, like many other nationalities, have been easy prey for offshore binary option scams, but it remains to be seen if this new type of assistance will reap any rewards.

Concluding Remarks

How many times must we read stories such as these to realize that the rise in forex fraud is touching every corner of the planet? These con artists are very well organized, have the latest technology to enhance their efforts, and will morph into a level of sophistication that is appropriate for the market at hand.

Don’t be a victim! Stay vigilant, suspicious, and wary that any unsolicited approach, no matter how sweet, could be an intricate scam.

Forex Fraud Analyst Team

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