A Broken Record: CFTC Fines Another Binary Options Firm for Illegal Off-Exchange Trading
Today, the U.S. Commodity Futures Trading Commission (CFTC) issued an Order filing and settling charges against Curtis Dalton of Middleton, Massachusetts, requiring him to pay $200,000 for offering illegal off-exchange retail commodity transactions to U.S. and overseas customers while failing to be registered by the CFTC.
The transactions offered by Dalton consisted of binary options in foreign currencies, which were required to be traded on a designated contract market, an exempt board of trade, or a bona fide foreign board of trade. According to the Order, these contracts were traded on a binary options trading platform operated by an unregistered entity. In soliciting and accepting orders for such contracts, the CFTC found that Dalton illegally operated as an unregistered futures commission merchant.
A binary option is a type of options contract in which the payout depends entirely on the outcome of a yes/no proposition and typically relates to whether the price of a particular asset will rise above or fall below a specified amount. Binary options have been the subject of many investigations and actions.
On their face, binary options are not fraudulent. Many binary options products are listed on exchanges and have regulatory oversight. But like Forex, many internet-based platforms have surged into the market, and with that surge, the opportunity for fraudulent promotional schemes, overstatement of returns, and the failure to pay out for the wins have increased. Furthermore, some actors are using manipulative software to rig the system, so “winning” bids end up losing.
Any registered or non-registered company that receives a CFTC investigative demand regarding binary options should consult competent counsel immediately to discuss the investigative process.
Kennyhertz Perry advises clients on a wide range of commodities and derivatives regulatory matters. Kennyhertz Perry has experience in all types of derivative transactions and design structures to meet clients’ specific trading, financial, and/or credit needs. The roots of the practice are in the commodities markets, where Kennyhertz Perry partner Braden Perry spent time as a Senior Trial Attorney with the Commodity Futures Trading Commission. Our lawyers regularly advise our clients on compliance with the complex laws and regulations governing the securities and derivatives industries, including the Commodity Futures Modernization Act of 2000, the Commodity Exchange Act, the Gramm-Leach-Bliley Act, the Securities Acts of 1933 and 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the SEC and CFTC regulations, the rules of the various derivatives exchanges and clearinghouses and other industry self-regulatory organizations and the “Blue Sky” state securities laws. Keeping abreast of regulatory developments is imperative, and enables our lawyers to guide clients on comment-making about proposed legislation and regulation, provide ongoing operational and compliance counseling, and offer advice on appropriate modifications of transaction structure and documentation.
Clients also benefit from Kennyhertz Perry’s experience in related areas of law, such as litigation, banking, securities, insurance, and its regular practice before the Commodity Futures Trading Commission. Leaders in the financial industry choose Kennyhertz Perry because the firm’s lawyers tailor their advice to the unique issues presented by each matter they handle.
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