The line between outright fraud and shady business practices has become quite blurred over the years. In true Darwinian fashion, fraudsters have been able to flourish in the Foreign Exchange Market by adapting and evolving their well orchestrated schemes by coming up with new ways to swindle money from unsuspecting traders. Scammers have been able to operate right under the noses of regulatory agencies (despite there being increased vigilance) and continue to play their con games to rip off investors. Sadly, the incidences of traders being scammed have skyrocketed in the past 3 years owing to increased market competition, slow global economic growth and , of course, greed. This article aims to highlight two of the most common Forex scams that traders need to be on the lookout for in 2017.
High Yield Investment Programs(HYIPs) Fronted By Crooked Fund Managers
There a large majority of fund managers in the Foreign Exchange Market who are transparent in all their activities, but at the same time, crooked ones still do exist. Crooked fund managers have elaborate schemes where they convince the Forex trader to invest their money in a certain asset. Once a trader turns their money over to them, they can as well kiss it goodbye. These crooked fund managers make outrageous claims as to their ability to generate market gains popularly known as High Yield Investment Programs (HYIP). The trader’s funds are then often kept in offshore bank accounts, far from the prying eyes of regulators.
An example of a High Yield Investment Program (HYIPS) was that involving the Forex trading firm CWM FX in 2015. The extravagance they displayed in London (which included signing major sponsorship deals with enterprises such as the Sports Breakfast Club, Wigan Warriors rugby club and Chelsea Football Club) raised regulators eyebrows and led police to raid their office suite in the swanky Heron Tower. An offshore investment scheme worth £50 million was uncovered in which potential traders were duped into investing their money with the promise of 5% monthly returns.
Scammers using Ponzi Schemes often promise massive monthly returns from a special trading formula that guarantees 100% success in the Foreign Exchange Market. It is essentially presented as a ‘Get Rich Quick’ investment scam which ends with the trader’s money being siphoned off by the fraudsters themselves. A Ponzi scheme starts off with the fraudsters placing an advertisement for a non-existent investment opportunity promising extraordinarily high returns in a very short period of time. The second phase of the scheme is where first investors receive their promised returns and in this moment of excitement spread word to family and friends, vouching for it and its credibility. What happens eventually is that the fraudsters vanish with the investor’s money, leaving the system to collapse and later investors receiving nothing.
Two large Ponzi Schemes were recently shut down in Japan and Great Britain. The first case involved two individuals from Nagoya, Japan who were able to successfully dupe more than 3,000 people (in a Forex investment ploy) into investing in ore worth 11.7 billion Yen ($100 million USD). Part of the money was used for Ponzi-styled paybacks but the later traders lost all their money (which is yet to be found). A similar case occurred in London when bank officials tipped off police about suspicious large-volume transfers that were moving in a business bank account belonging to a 58 year old man. The man was later arrested and found to be in possession of bank drafts worth €30 million. Under further investigations police determined that the funds were from an international organized crime ring which also included elaborate Forex Ponzi schemes and a money laundering scheme that was carried out through the suspects company bank account.
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