Binary Options Firm Fined $22 Million by the CFTC
Yesterday, the Middle District of Florida entered a Consent Order for Permanent Injunction, Civil Monetary Penalty, and Other Equitable Relief against Dr. Michael Shahand and Zilmil, Inc., who allegedly engaged in a large-scale internet fraud scheme from at least June 2013 through July 10, 2017, involving off-exchange binary options. 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.
According to the Order, the defendants acted as independent marketers, referred to as “affiliate marketers,” who attracted and funneled customers to unregistered binary options trading websites, including by offering so-called binary options autotrading systems with names like “Millionaire Money Machine.” According to the Order, the systems placed trades until the customers’ accounts were depleted.
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.
To learn more about Kennyhertz Perry, LLC, please visit kennyhertzperry.com.
*The choice of a lawyer is an important decision and should not be based solely upon advertisements.