Foreign Currency Investment Scams - FOREX / Foreign Exchange Currency Frauds

A typical Scam Pitch: "'Given the things happening in Iraq, you can easily profit from the exchange between the U.S. dollar and the dinar.'"

The advertisements to invest in foreign currencies (called Forex contracts) seem too good to pass up. They claim high returns coupled with low risks from investments in foreign currency contracts, like the Iraqi dinar. They offer purchase of the Iraqi Dinar, Vietnamese Dong, the Egyptian Pound and others. The scammers claim that when those governments revalue their currencies, increasing their worth against the dollar, you just sell your Dinar, Dongs or Pounds and cash in.  Even at its best, this market is volatile and high risk. Forex trading can be legitimate for governments and large institutional investors concerned about fluctuations in international exchange rates, and it can even be appropriate for some individual investors. But the average investor should be extremely wary when it comes to forex offers.

How do foreign currency exchange contracts (Forex) scams work

Forex contracts provide the right to buy or sell a certain amount of a foreign currency at a fixed price in U.S. dollars. Profits or losses accrue as the exchange rate of that currency fluctuates on the open market. It is extremely rare that individual traders actually see the foreign currency. Instead, they typically close out their buy or sell commitments and calculate net gains or losses based on price changes in that currency relative to the dollar over time.

Forex markets are among the most active markets in the world in terms of dollar volume. The participants usually include large banks, multinational corporations, governments, and speculators. Individual traders comprise a very small part of this market. Because of the volatility in the price of foreign currency, losses can accrue very rapidly, wiping out an investor's down payment in short order.

The scammers make it sound like a great investment, but it's a scam. The scammer sells you essentially worthless currency for which you pay real dollars. The hoax is so appealing because, unlike previous forex (foreign currency exchange) scams where victims were given a bogus "receipt" for their money, you can actually purchase these currencies. The problem is that they will be very difficult to sell, and it's extremely unlikely they will ever significantly increase in value. Many experts have explained why the investment promises are false.

Often, the victim investor's money is never actually placed in the market through a legitimate dealer, but simply diverted'stolen, for the personal benefit of the con artists.

The Iraqi Dinar is the most popular currency used for the this scam. But given recent political upheaval in Egypt and the growth of the Vietnamese economy, these currencies are also gaining traction.

How to recognize a foreign currency scam

Watch out for these red flags when considering a forex market investment:

  • Watch for promises of large profits... but little information. Be wary of promises that sound too good to be true: 'You can make six figure profits within a year; forex investments are very low risk; You can double your money.' Get-rich-quick schemes, including those involving foreign currency trading, tend to be frauds.
  • Be wary of promises of no financial risk. Be suspicious if a firm or individual says there is little risk.
  • Retiring soon? Inheriting money? Those looking for investment opportunities are particularly attractive to scammers.
  • Scammers often throw around terminology to enhance their claim. For example, they often claim to trade of the "interbank market." Don't fall for it.
  • Scammers use unsolicited phone calls.
  • Scammers use high pressure "act now!" tactics.
  • Promises that with Forex, there is no 'bear' market
  • Only scammers ask that you wire money to them (Western Union MoneyGram)
  • Typical scams phrases used:
    "This Euro/dollar deal is guaranteed to rise double what your current investments are doing."
    Trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience.
    "Believe me, as a 10-year senior vice president at this firm, I would never sell something that doesn't produce."
    Leading you to believe that other savvy people have already invested.
    "This is how Bob down the street from you got his start. I know it's a lot of money, but I'm in'and so is half our club. It's worth every dime."
    Offering to do a small favor for you in return for a big favor.
    "I'll give you a break on my normal Forex commission if you buy now'half off."
    Creating a false sense of urgency by claiming limited supply.
    "There are only two units left and the Asian market is about to open, so I'd sign up today.'

How to avoid foreign currency scams

  • Always get as much background as you can about a firm or individual's investment track record. Then, verify that information. Don't rely on the recommendations of friends or relatives.
  • Get a copy of the written risk disclosure statement. Be sure to read it thoroughly.
  • Be skeptical if someone you don't know calls you about investment opportunities.
  • Don't be wowed by buzz words
  •  Be very cautious if someone tries to convince you to send money immediately by overnight express or wire transfer.
  • Hang up on unsolicited telephone calls about investing.
  • Don't fall for high-pressure tactics.
  • Do not deposit more funds than you can afford to lose. Never invest money that you can't afford to lose.
  • Do not mortgage your home or cash in your savings.
  • Do not trade on margin unless you understand it. Margin trading can make you responsible for losses that greatly exceed the dollar amount you deposited.
  • Investors should make sure that anyone offering a forex investment is properly licensed and has a reputable business history. The public can obtain information about any firm or individual registered with the CFTC, including any actions taken against a registrant, through the National Futures Association (NFA) Background Affiliation Status Information Center (BASIC), available on the NFA website.  You can also find out if someone is registered by calling the National Futures Association at 1-800-676-4632.

What to do if you have been scammed

If you believe you are a victim of foreign exchange fraud, please

 

If you have questions, are aware of suspicious activities, or believe you

And please let us know about any suspicious calls or emails you receive.  We look for patterns so that we can alert the authorities and victims to new scams, before it is too late!

References:

  • FTC.gov
  • Read the US Commodity Futures Trading Commission's warning on foreign currency trading fraud.
  • The Commodity Futures Trading Commission (CFTC)  is the Federal agency with the primary responsibility for overseeing the commodities markets, including foreign currency trading.
  • The North American Securities Administrators Association (NASAA)

Examples of Forex scam prosecutions

  • In 2005, the CFTC and the Commissioner of Corporations of the State of California sued National Investment Consultants, Inc., and others in U.S. District Court for the Northern District of California for engaging in a forex scam involving approximately $2 million in customer funds. In 2006, the Court ordered restitution and fines amounting to $3.4 million.
  • Also in 2005, the CFTC and the Texas State Securities Board (TSSB) engaged in a cooperative enforcement effort against Premium Income Corp. (PIC) and its principals. The CFTC and Securities and Exchange Commission (SEC) filed an action in U.S. District Court for the Northern District of Texas and the TSSB filed an administrative action charging PIC and its principals with engaging in an illegal $11 million forex operation. To date, the federal court has found three corporate defendants liable to pay restitution of $12 million and each was assessed a fine of $37 million. The State of Texas also has obtained cease and desist orders along with various criminal indictments and convictions. PIC's president is currently incarcerated on charges stemming from his forex scam.
  • In 2004, Gregory Blake Baldwin of Utah pleaded guilty to fraud after his firm, Sunstar Funding, accepted $228,500 from 33 investors for placement into the foreign currency market. The investors' money was not placed in the foreign currency market but was used to pay some past investors and for personal expenses of Baldwin.
  • In 2003, the CFTC and the State of Oregon Department of Consumer and Business Services sued Orion International, Inc., and its principals in U.S. District Court for the District of Oregon for fraudulently soliciting over $40 million to participate in a purported forex fund. Orion, and its president Russell Cline, misappropriated virtually all the customer funds. In 2006, the Court entered fines and restitution orders against the defendants totaling almost $150 million. Cline is currently incarcerated on charges stemming from his forex scam.
  • In 2002, the CFTC, the SEC and the State of Utah filed an action against a company known as '4NExchange' for violations of state and Federal laws as the firm's principals illegally offered foreign currency contracts through an alleged Ponzi scheme that cost investors nearly $15 million.

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