US authorities are suing a binary options trading platform and have warned about others in a sign of heightened attention to the sector following troubles at Intrade, the prediction market.

The government filed civil charges accusing Banc de Binary, based in Cyprus and Israel, of illegally offering US investors binary options on markets including stock indices, currencies and oil. Such options contracts pay out when an investor successfully bets that an event occurs, such as an index surpassing a predetermined round number.

The Commodity Futures Trading Commission and Securities and Exchange Commission said in joint complaints that Banc de Binary offered options contracts inside the US despite never registering as a broker or exchange.

The SEC alleged that Banc de Binary claimed to have about 250,000 investors in autumn 2012, more than half of them located in the US.

In a warning, the agencies added that only one binary options exchange had been granted exchange status in the US, Chicago-based North American Derivatives Exchange. “All other entities that are offering binary options that are commodity options transactions are doing so illegally,” they said in a special fraud advisory.

The crackdown comes six months after the CFTC sued to stop Intrade, the prediction market, from offering its popular contracts on cinema receipts and election results to people in the US. The court action remains unresolved.

Dublin-based Intrade subsequently revealed a $700,000 shortfall in customer accounts.

Banc de Binary chief executive Oren Laurent, identified by the CFTC as an Israel resident named Oren Shabat Cohen, did not respond to an email seeking comment. A company customer service agent declined to comment when reached by telephone. The defence counsel for Banc de Binary was not immediately made clear.

Banc de Binary’s website refers to the company as “private option bankers”. The CFTC said it takes the other side of each and every transaction executed through the website.

The toll-free Banc de Binary telephone number includes extensions for an analyst desk and a “Lion’s Club VIP concierge”. But in its complaint the SEC said its customers included American people of modest means, including one with monthly income of $300 and net worth of less than $25,000.

In another instance, the SEC alleged that the company actively encouraged an investor to deposit funds into his Banc de Binary account even after he informed the company he was unemployed and his bank account contained less than $1,000.

Andrew Ceresney, SEC co-director of enforcement, summarised the SEC allegations: “Banc de Binary contacted US investors through the internet and YouTube but completely disregarded the US securities laws’ registration requirements. We will aggressively combat such conduct no matter where it originates.”

Get alerts on Financial & markets regulation when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article