Forex Scam &&& Fraud

A forex scam is any trading scheme used to defraud individual traders by convincing them that they can expect to unreasonably profit by trading in the foreign exchange market, which would be a zero-sum game were it not for the fact that there are brokerage commissions, which technically make forex a "negative-sum" game.

These scams might include churning of customer accounts for the purpose of generating commissions, selling software that is supposed to guide the customer to large profits,[1] improperly managed "managed accounts",[2] false advertising,[3] Ponzi schemes and outright fraud.[4] It also refers to any retail forex broker who indicates that trading foreign exchange is a low risk, high profit investment.[5]

The U.S. Commodity Futures Trading Commission (CFTC), which loosely regulates the foreign exchange market in the United States, has noted an increase in the amount of unscrupulous activity in the non-bank foreign exchange industry.[6]

An official of the National Futures Association was quoted[7] as saying, "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically..." Between 2001 and 2006 the U.S. Commodity Futures Trading Commission has prosecuted more than 80 cases involving the defrauding of more than 23,000 customers who lost $300 million, mostly in managed accounts. CNN also quoted Godfried De Vidts, President of the Financial Markets Association, a European body, as saying, "Banks have a duty to protect their customers and they should make sure customers understand what they are doing. Now if people go online, on non-bank portals, how is this control being done?"

The highly technical nature of retail forex industry, the OTC nature of the market, and the loose regulation of the market, leaves retail speculators vulnerable. Defrauded traders and regulatory authorities, can find it very difficult to prove that market manipulation has occurred since there is no central currency market, but rather a number of more or less interconnected marketplaces provided by interbank market makers.

CFTC warnings

The CFTC lists 9 warning signs for foreign exchange trading fraud:[5]

1. Stay away from opportunities that seem too good to be true

Always remember that there is no such thing as a "free lunch." Be especially cautious if you have acquired a large sum of cash recently and are looking for a safe investment vehicle. In particular, retirees with access to their retirement funds may be attractive targets for fraudulent operators. Getting your money back once it is gone can be difficult or impossible.

2. Avoid any company that predicts or guarantees large profits

Be extremely wary of companies that guarantee profits, or that tout extremely high performance. In many cases, those claims are false.

The following are examples of statements that either are or most likely are fraudulent:

"Whether the market moves up or down, in the currency market you will make a profit."
"Make $1000 per week, every week"
"We are out-performing 90% of domestic investments."
"The main advantage of the forex markets is that there is no bear market."
"We guarantee you will make at least a 30-40% rate of return within two months."

3. Stay Away From Companies That Promise Little or No Financial Risk

Be suspicious of companies that downplay risks or state that written risk disclosure statements are routine formalities imposed by the government.

The currency futures and options markets are volatile and contain substantial risks for unsophisticated customers. The currency futures and options markets are not the place to put any funds that you cannot afford to lose. For example, retirement funds should not be used for currency trading. You can lose most or all of those funds very quickly trading foreign currency futures or options contracts. Therefore, beware of companies that make the following types of statements:

"With a $10,000 deposit, the maximum you can lose is $200 to $250 per day."
"We promise to recover any losses you have."
"Your investment is secure."

4. Don't Trade on Margin Unless You Understand What It Means

Margin trading can make you responsible for losses that greatly exceed the dollar amount you deposited.

Many currency traders ask customers to give them money, which they sometimes refer to as "margin," often sums in the range of $1,000 to $5,000. However, those amounts, which are relatively small in the currency markets, actually control far larger dollar amounts of trading, a fact that often is poorly explained to customers.

Don't trade on margin unless you fully understand what you are doing and are prepared to accept losses that exceed the margin amounts you paid.

5. Question Firms That Claim To Trade in the "Interbank Market"

Be wary of firms that claim that you can or should trade in the "interbank market," or that they will do so on your behalf.

Unregulated, fraudulent currency trading firms often tell retail customers that their funds are traded in the "interbank market," where good prices can be obtained. Firms that trade currencies in the interbank market, however, are most likely to be banks, investment banks and large corporations, since the term "interbank market" refers simply to a loose network of currency transactions negotiated between financial institutions and other large companies.

6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise

Be especially alert to the dangers of trading on-line; it is very easy to transfer funds on-line, but often can be impossible to get a refund.

It costs an Internet advertiser just pennies per day to reach a potential audience of millions of persons, and phony currency trading firms have seized upon the Internet as an inexpensive and effective way of reaching a large pool of potential customers.

Many companies offering currency trading on-line are not located within the United States and may not display an address or any other information identifying their nationality on their Web site. Be aware that if you transfer funds to those foreign firms, it may be very difficult or impossible to recover your funds.

7. Currency Scams Often Target Members of Ethnic Minorities

Some currency trading scams target potential customers in ethnic communities, particularly persons in the Russian, Chinese and Indian immigrant communities, through advertisements in ethnic newspapers and television "infomercials."

Sometimes those advertisements offer so-called "job opportunities" for "account executives" to trade foreign currencies. Be aware that "account executives" that are hired might be expected to use their own money for currency trading, as well as to recruit their family and friends to do likewise. What appears to be a promising job opportunity often is another way many of these companies lure customers into parting with their cash.

8. Be Sure You Get the Company's Performance Track Record

Get as much information as possible about the firm's or individual's performance record on behalf of other clients. You should be aware, however, that It may be difficult or impossible to do so, or to verify the information you receive. While firms and individuals are not required to provide this information, you should be wary of any person who is not willing to do so or who provides you with incomplete information. However, keep in mind, even if you do receive a glossy brochure or sophisticated-looking charts, that the information they contain might be false.

9. Don't Deal With Anyone Who Won't Give You Their Background

Plan to do a lot of checking of any information you receive to be sure that the company is and does exactly what it says.

Get the background of the persons running or promoting the company, if possible. Do not rely solely on oral statements or promises from the firm's employees. Ask for all information in written form.

If you cannot satisfy yourself that the persons with whom you are dealing are completely legitimate and above-board, the wisest course of action is to avoid trading foreign currencies through those companies.

The use of high leverage

By offering high leverage, the market maker encourages traders to trade extremely large positions. This increases the trading volume cleared by the market maker and increases his profits, but increases the risk that the trader will receive a margin call. While professional currency dealers (banks, hedge funds) never use more than 10:1 leverage, retail clients are generally offered leverage between 50:1 and 200:1, and even up to 400:1.

Fraud

In the broadest sense, a fraud is a deception made for personal gain. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and is also a civil law violation. Many hoaxes are fraudulent, although those not made for personal gain are not technically frauds. Defrauding people of money is presumably the most common type of fraud, but there have also been many fraudulent "discoveries" in art, archaeology, and science.

Definition

In criminal law, fraud is the crime or offense of deliberately deceiving another in order to damage them – usually, to obtain property or services unjustly. [1] Fraud can be accomplished through the aid of forged objects. In the criminal law of common law jurisdictions it may be called "theft by deception," "larceny by trick," "larceny by fraud and deception" or something similar.

In academia and science, fraud can refer to academic fraud – the falsifying of research findings which is a form of scientific misconduct – and in common use intellectual fraud signifies falsification of a position taken or implied by an author or speaker, within a book, controversy or debate, or an idea deceptively presented to hide known logical weaknesses. Journalistic fraud implies a similar notion, the falsification of journalistic findings.

Fraud can be committed through many methods, including mail, wire, phone, and the internet (computer crime and internet fraud).

Acts which may constitute criminal fraud include:

* bait and switch
* confidence tricks such as the 419 fraud, Spanish Prisoner, and the shell game
* false advertising
* identity theft
* false billing
* forgery of documents or signatures
* taking money which is under your control, but not yours (embezzlement)
* health fraud, selling of products of spurious use, such as quack medicines
* creation of false companies or "long firms"
* false insurance claims
* bankruptcy fraud, is a US federal crime that can lead to criminal prosecution under the charge of theft of the goods or services
* investment frauds, such as Ponzi schemes
* securities frauds such as pump and dump

Fraud, in addition to being a criminal act, is also a type of civil law violation known as a tort. A tort is a civil wrong for which the law provides a remedy. A civil fraud typically involves the act of intentionally making a false representation of a material fact, with the intent to deceive, which is reasonably relied upon by another person to that person's detriment. A "false representation" can take many forms, such as:

* A false statement of fact, known to be false at the time it was made;
* A statement of fact with no reasonable basis to make that statement;
* A promise of future performance made with an intent, at the time the promise was made, not to perform as promised;
* A statement of opinion based on a false statement of fact;
* A statement of opinion that the maker knows to be false; or
* An expression of opinion that is false, made by one claiming or implying to have special knowledge of the subject matter of the opinion. "Special knowledge" in this case means knowledge or information superior to that possessed by the other party, and to which the other party did not have equal access.

In the UK a report concluded that the total costs of fraud and dealing with fraud in the year 2005-2006 was at least 13.9 Billion GBP.

Notable fraudsters

* Frank Abagnale Jr., US impostor who wrote bad checks and falsely represented himself as a qualified member of professions such as airline pilot, doctor, and attorney. The film Catch Me If You Can is based on his life.
* Cassie Chadwick, who pretended to be Andrew Carnegie's daughter to get loans.
* Richard Eaton, an English businessman who was business partners with mobster Paul Vario and Jimmy Burke and was involved in the Lufthansa heist.
* Shinichi Fujimura, Japanese archaeologist who announced on October 23, 2000 that he had discovered eight stoneware pieces, from a layer of earth, more than 600,000 years old in the Kamitakamori ruins in Tsukidate, Miyagi Prefecture, believed to be the nation's oldest. However, Fujimura confessed that he had buried the stones at the ruins in advance of the excavation.
* Benny Hinn, televangelist
* Konrad Kujau, German fraudster and forger responsible for the "Hitler Diaries".
* Kenneth Lay, the American businessman who built energy company Enron. He was one of the highest paid CEOs in America until he was ousted as Chairman and was convicted of fraud and conspiracy, but his conviction was reversed by the US Appeals Court.
* Nick Leeson, English trader whose unsupervised speculative trading caused the collapse of Barings Bank.
* Colleen McCabe, British headmistress who stole £½ million from her school.
* Gregor MacGregor, Scottish conman who tried to attract investment and settlers for the non-existent country of Poyais.
* Gaston Means, a professional conman during U.S. President Warren G. Harding's administration.
* Michael Milken, "The Junk Bond King".
* Barry Minkow and the ZZZZ Best scam.
* Frederick Emerson Peters, US impersonator who wrote bad checks.
* Charles Ponzi and the Ponzi scheme.
* Peter Popoff, televangelist
* Alves Reis, who forged documents to print 100,000,000 PTE in official escudo banknotes (adjusted for inflation, it would be worth about US$150 million today).
* Christopher Rocancourt, a Rockefeller impersonator who defrauded Hollywood celebrities.
* John Spano, a struggling businessman who faked massive success in an attempt to buy out the New York Islanders of the NHL.
* John Stonehouse, the last Postmaster-General of the UK and MP who faked his death.
* Richard Whitney, who stole from the New York Stock Exchange Gratuity Fund in the 1930s.
* James Paul Lewis, Jr., ran one of the biggest ($311 million) and longest running Ponzi Schemes (20 years) in US history.