Editor’s note: This article was first published in July 2014. It describes Banc de Binary at that time, with US investor-protection agencies suing the company and a court order barring it from the US. The case later ended in a settlement, and retail binary options trading in the EU and Israel has since been banned.
Although I have never given my views on investing in binary options, I will say that I have refused on several occasions to accept them as advertisers on this blog. Personally, I see binary options as a casino game where you toss a coin and have to guess whether it will land heads or tails within a short time (sometimes 60 seconds or less), and where winning positions can turn into losing ones, since these platforms make it very clear that they take no responsibility for delays in the prices shown on the platform.
Tony Hetherington, a financial investigator who writes a readers’ advice column in the Daily Mail, has received a letter describing a problem that matches what I have heard about other binary options platforms. We are not going to tar them all with the same brush, but it should serve as a warning about the dangers of gambling or investing with binary options.
The letter Hetherington received comes from a man who opened a binary options account on the website of Banc de Binary, a broker that markets itself as one of the leaders in this market. He writes:
“The company called me and I thought I was talking to someone from Wall Street, so I opened an account with $1,000 (590 euros) taken from my MasterCard. Then I added another $15,000. The company called me to invest more, but I refused until November 2012, when I used a different card to deposit another $2,500. In the end I put in around $50,000. Then a senior broker called me telling me to invest more, because we would make more money than I could imagine.
“But I started losing a lot of money, and while I was trading I suffered a heart attack because of the stress, and my doctor advised me to give up this kind of gambling because the stress would kill me.
“I still had $17,000 in my account, but my wife, who handles our finances, has found that Banc de Binary took a total of $24,000 from my cards without authorisation. Not just the $3,500 I agreed to.
“There are many unauthorised withdrawals of $500 to $1,000, and our bank says it is too late to recover the money.”
Tony Hetherington, who looked into the matter and spoke to Banc de Binary about it, replied as follows:
Were you really talking to someone from Wall Street when you decided to invest?
This question is easy to answer. Banc de Binary uses an address in the heart of New York’s financial district, but it does not actually operate from there. It operates from Cyprus and Israel. Anyone who believes that having a Wall Street address means having a licence to operate from there as an investment firm has been misled.
US investor-protection agencies are taking legal action against Banc de Binary for alleged illegal trading. At the moment, under a court order, Banc de Binary is barred from operating in the United States.
What happened to the $17,000 still in the account?
Hetherington says there are no funds left in the account, and that Banc de Binary has offered $2,000 as a goodwill gesture if the customer gives up his right to “anything more”. In other words, take $2,000 but sign away the right to take legal action against the broker in the future.
According to the company, all the money was bet and lost.
Hetherington says it is very strange for a company of this kind to employ people who act as investment advisers, given that Banc de Binary is the counterparty to the trade. That is, if the customer wins, Banc de Binary pays, and if the customer loses, the company wins. Why would they want the customer to win? Why would they advise you on winning positions when what they really want is for you to lose?
What about the $24,000 taken from the cards without the customer’s consent?
Banc de Binary insists that the customer authorised 9 deposits, not just 2, and says an email was sent to him every time his card was charged.
The company says that if those emails did not arrive, the internet provider may have been to blame.
What is puzzling is that within 24 hours or less, Banc de Binary charged $4,000 to the card, then $1,000 and finally $500.
At this stalemate, Banc de Binary cannot show that there was a call from the customer asking to deposit more money, and the customer cannot prove that Banc de Binary did it without his consent.
My opinion.
Binary options are not an investment product or vehicle. They are just another game of chance like the ones you can find in any casino. The SEC has been going after many of these platforms for years. The problem for the SEC is that most of them are registered outside its jurisdiction, and it cannot stop someone anywhere in the world from opening an account with whoever offers the best deal or has the best salesman.
The added problem with opening an account with a binary options broker is that we hand over our card or bank account details, so if we are dealing with a company whose intention is to empty our account, it is like giving them the key to our money.
They advertise themselves as an easy way for anyone to make a lot of money from home, even explaining miraculous methods where you are supposed to set yourself a profit limit of 300 euros a day. The truth is that most people lose.
In this case, whether Banc de Binary carried out some kind of con or scam against this customer, who had more money than sense when it came to investing, is something the courts will have to decide.
Read: 18 truths about investing
Featured image: Maximo Betman, CC BY-SA 4.0, via Wikimedia Commons.
