Binary Options Firm and Principal to Pay More Than $22 Million for Fraud Scheme

Perpetuating financial fraud is a numbers game. 1) How many people can you persuade to invest? 2) How much money can you accrue? 3) How long before one of the regulatory bodies discovers your activities and throws the book at you? 4) How much money will you pay if caught? (Answer: $22 million

Is financial fraud worth the risk?

Apparently. Financial fraudsters are like whack-a-moles. For every bad actor the regulators fine/ban/jail, two more spring up to take their place. But this time, the Commodity Futures Trading Commission (CFTC) reports that Judge Timothy Corrigan of the U.S. District Court for the Middle District of Florida entered a Consent Order for Permanent Injunction, Civil Monetary Penalty, and Other Equitable Relief against Dr. Michael Shah and Zilmil, Inc. of Jacksonville, Florida. The charges: Large scale internet fraud involving off-exchange binary options perpetuated for more than four years from at least June 2013 through July 10, 2017.

The Judge imposed monetary sanctions totaling $22,854,289.69 and his Order also permanently enjoined the defendants from repeating their bad acts – making fraudulent misrepresentations in the solicitation of binary options, engaging in activities relating to the illegal offering of commodity options, and acting as an unregistered commodity trading adviser.

According to James McDonald, Director of the CFTC’s Enforcement Division, too often, “we have seen fraudsters in our markets seek to take advantage of the potential anonymity of the internet or various social media platforms to perpetrate their schemes. This includes so-called ‘affiliate marketers,’ who market these fraudulent schemes to unwitting customers, often over email, social media, or some other internet platform.”

Is there really a “Millionaire Money Machine?”

Maybe in a parallel universe. But not in this one.

Judge Corrigan’s Order stems from an early enforcement action against the group that was part of Jason B. Scharf and his worldwide web of companies and affiliate marketers (CFTC v. Scharf, No. 3:17-cv-00774-TJC-MCR [M.D. Fla.]). Judge Corrigan’s Order finds that the defendants acted as independent marketers (affiliate marketers), who attracted and funneled customers to unregistered binary options trading websites. Tactics included offering so-called binary options auto-trading systems with names like “Millionaire Money Machine,” which placed trades until the customers’ accounts were depleted.

Zilmil, Inc. claimed to be one of the biggest affiliate marketers in the binary option industry. The defendants sent more than 60 million mass emails to more than 1.4 million unique email addresses in just one seven-month period. The emails contained false and misleading statements about the performance of the trading systems – for example, that customers could make “millions” with the systems. During the time in question, the defendants reportedly made more than $17.8 million from the sale of its auto-trading systems and commissions from the binary options websites.

While there is no guarantee the judgments will be recouped and shared among the aggrieved investors, Corrigan’s Order imposes to a total judgment of $22,854,289.69 on the defendants. This includes a restitution award of $9,300,000 against Dr. Shah, plus a civil monetary penalty of $1 million, and a restitution award of $8,554,289.69 against Zilmil, plus a civil monetary penalty of $4 million. The Order provides for the immediate transfer of ownership of approximately $9.2 million in cash and cash equivalents from the defendants to the court-appointed equity receiver in this case, Kenneth Murena of Damian & Valori LLP in Miami.

Is there a world in which traders make 89% profits and 500% returns?

Wishful thinking on the part of defrauded investors, but not Judge Corrigan who also entered a default judgment order against CIT Investments LLC, Brevspand EOOD, and CIT Investments Ltd. for their part in the fraud and illegal binary options activities. He found that all three entities were part of a single common enterprise operating the illegal binary options scam primarily through websites, in particular, Citrades.com.

Citrades.com, which claimed to be started by “a group of highly accredited Wall Street brokers,” was a website self-purported to be the “leading platform” for binary options trading. The site touted its binary options products by claiming that trading through the website was safe and secure, highly profitable, and that traders could make up to 89% profits with as much as 500% returns. The defendants in this action also offered auto-trading systems through Citrades.com and Autotradingbinary.com that promised 100% automated binary options profits. However, in reality, customers faced a substantial risk that they would lose money trading binary options and that their funds would be misappropriated.

In this instance, the Court ordered the defendants to pay $4,480,432.60 in restitution to their victims, as well as a penalty of $13,441,294.80.

Where are the law-abiding, compliant commodity futures trading firms?

They are out there and they are in the majority, despite the egregious actions of a few bad apples. Like you, most are committed to regulatory compliance and investor protections. While one cannot stop investors from investing in opportunities that are much too good to be true, there is help for firms interested in compliance. That’s where Patrina can help. We’ve built our business based on helping organizations keep track of “bad apples,” and stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective, designated third-party services, our comprehensive, 8-module compliance solution, and compliant data capture, file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered. Let’s talk.