Tuesday, March 31, 1998

FOREIGN CURRENCY FRAUD

There is a legitimate market for foreign currency. Foreign currency futures can either be traded on recognized futures exchanges or in the "interbank market" - trading between l arge banks and corporations that does not involve individual or retail customers. The CFTC regulates the legitimate futures trading. But there are also plenty of scams. Some often attract consumers through advertisements in local newspapers or radio or via Internet sites offering high-return, low-risk investments. Others tout high paying employment opportunities that actually forced the "employee" to make large investments in foreign currency. Sometimes fraudulent firms claim to bypass the retail market and help consumers trade directly on the "interbank market." But individual consumers don't usually trade in that market, which involves trading between large institutions.

Be cautious of any company that approaches you or runs ads asking you to trade in foreign currencies.

1. Avoid any company that predicts or guarantees large profits - Be wary of companies that guarantee profits or assure a certain percentage of profits. Here are some examples of statements made by fraudulent currency traders:
   
   • "Whether the market moves up or down, in the currency market you will make a profit."
     
   • "Expect returns of 35-76%."
     
   • "We guarantee you will make at least a 30-40% rate of return within two months."

2. Stay away from companies that promise little or no financial risk - Be suspicious of companies that downplay risks or state that written disclosure statements are routine formalities imposed by the government. The currency futures market is very risky. Remember, the higher the possible rate of return the higher the risk. There is no such thing as a high-return, low-risk investment. You should NEVER invest funds in currency futures that you cannot afford to lose. You can easily lose most or all of your money in a single day trading foreign currency futures contracts. Beware of companies that say things like:
   • "You take only as much risk as you see fit."
     
   • "with a $10,000 deposit, the maximum you can lose is $200 to $250 per day."

3. Don't trade on margin unless you understand what it means - Many traders ask customers to give them money known as a "margin," sums as small as $1000 to $5000. These small amounts are used to control much larger dollar amounts in actual trading. Essentially, you place a small amount of money as a deposit and are then loaned the rest in order to control a larger section of the market. You should be aware - margin trading can make you responsible for dollar losses that greatly exceed the margin amount you deposited. If you put up a margin of $1000 and that margin controlled $10,000 in contracts but was then lost, then you are responsible for all $10,000 in losses.

4. Be wary of sending of transferring cash on the Internet - It is so easy to set up a website or send out mass e-mail that it costs the fraudulent currency trader only pennies a day to reach his victims. Many companies that offer currency trading on-line are not located within the US and may not display their actual address. You may think you are sending money somewhere inside this country, but it could be going to another continent. You never really know to whom you are sending the money. If you transfer funds to foreign firms, it may be very difficult or impossible to recover them. It doesn't matter how safe the transfer method is if you are sending your money to a criminal.

5. Prior to trading contact the authorities - Check it out before you send any money. Contact your state Securities Commission and your local consumer protection office. You should also contact the Securities Commission and the Better Business Bureau nearest the company's location. Remember, just because there is no report on file does not mean that the company isn't fraudulent, it just means that no on has reported anything. You should also call the National Futures Association at 1-800-621-3570 and ask if the company or individuals who work there are registered with the NFA or the CFTC and if they have had disciplinary problems. Criminals are often not registered and may not appear in the NFA records. You should also contact the CFTC if you encounter anything suspicious.

6. Currency trading scams often target minorities - Some scams target ethnic communities. These will often offer high paying jobs as "account executives" who are expected to use their own money for currency trading, as well as recruiting family and friends to do the same. What appears to be a promising career is actually a away to lure in as many victims as possible.

7. Be sure to get the company's performance track record - Get as much information as you can about a company and it's employee's performance record. However, be aware that even if you do get a very professional looking brochure with fancy charts and graphs, all the information in it could be fake. Don't just rely on the company's information, check with the authorities as well.

8. Don't deal with people who won't give you their background - Do not rely on oral statements. A legitimate company will give you information in writing. If a company refuses to do that, then take your business elsewhere.

If you would like more information or would like to report suspicious activity, you can contact the CFTC at their website or by phone at 202-418-5320.

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