FOREX: The
Commodity Futures Trading Commission (CFTC) has witnessed increasing numbers,
and a growing complexity, of financial investment opportunities in recent years,
including a sharp rise in foreign currency (forex) trading scams. A new federal
law enacted in December 2000, called the Commodity Futures Modernization Act of
2000 (CFMA), makes clear that the Commission has the jurisdiction and authority
to investigate and take legal action to close down a wide assortment of
unregulated firms offering or selling foreign currency futures and options
contracts to the general public. In addition, the CFTC has jurisdiction to
investigate and prosecute foreign currency fraud occurring in its registered
firms and their affiliates.
In light
of the CFMA, the CFTC has issued an Advisory concerning the offering and trading
of foreign currency futures and options contracts involving the retail public,
and also revised and re-issued its 1998 Consumer Alerton foreign currency
trading to help the retail public identify foreign currency trading scams. The
CFTC’s Advisory reaffirms that off-exchange trading of foreign currency futures
and options contracts with retail customers by a counterparty that is not a
regulated financial entity as set forth in the CFMA is unlawful.
In its
separate Consumer Alert, the CFTC warns consumers of sales solicitations
appearing in newspapers, radio or television promotions, or attractive Internet
websites, touting high-return, low-risk investment opportunities in foreign
currency trading, and of highly paid currency-trading employment opportunities.
The CFTC urges the public to be skeptical of such claims and suggests some "red
flags" to look for, and cautionary steps to take, before trading foreign
currency products.
In addition
to this Advisory and Consumer Alerts, the CFTC has also issued the following
Consumer Alerts that are posted on its Website at
http://www.cftc.gov/cftc/cftccustomer.htm:
-
Forex Scams
Generally speaking, foreign
currency futures and options contracts may be traded legally on an exchange or
board of trade that has been approved by the CFTC.
-
Forex Fraud
Have you been
solicited to trade foreign currency contracts (also known as "forex")?
- Understanding
Legitimate Foreign Currency Operations
Generally speaking, foreign
currency futures and options contracts may be traded legally on an exchange or
board of trade that has been approved by the CFTC.
-
Stay
Away From Opportunities That Sound Too Good to Be True
Get-rich-quick
schemes, including those involving foreign currency trading, tend to be
frauds.
-
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.
-
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.
-
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.
-
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.
-
Be Wary of Sending or
Transferring Cash on the Internet, By Mail
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.
-
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".
-
Warning Signs Of
Commodity "Come-Ons"
If you are solicited by a company to
purchase commodities, watch for the warning signs listed below:
-
More Information and Contacts
Questions concerning this advisory may be addressed to the CFTC's Office of
Public Affairs at (202) 418-5080.
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