FILE PHOTO - A general view of the financial district of London is seen in London, Britain, October 19, 2016. REUTERS/Hannah McKay/File Photo
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Police revealed on Thursday that they had raided 20 businesses in the City of London as part of a crackdown on a boiler room investment fraud, after almost 700 people reported losing more than £18m in the first half of 2017.

The scams involve binary options trading, a form of high-stakes gambling that enables punters to place bets on an outcome in financial markets, such as whether the FTSE 100 index will rise or fall.

Some binary options products are offered legitimately by London-listed spread betting companies such as IG Group and CMC Markets.

However, the police’s focus is on boiler room operations that use high-pressure sales tactics, including cold calls and the promise of high investment returns to dupe people into handing over their money — but then never place trades for these individuals.

A total of 2,605 victims spread across the UK have, on a combined basis, lost £59.4m on binary options scams since 2012, said the City of London Police. Each person had lost £22,811 on average.

£59.4m

Combined losses since 2012 by 2,605 binary options scam victims

The police added that binary options fraud was a growing problem, with 697 people reporting that they had lost more than £18m between January and June this year.

As part of efforts to stamp out the scams, the police, together with trading standards officers, raided 20 small and medium-sized businesses on Tuesday.

The action, part of a broader push to uncover boiler room investment frauds thought to be operating out of the City, yielded some “interesting results”, said the police, who cited the discovery of a business that had paid over three months’ rent upfront to its provider and then disappeared.

“Working closely with our partners, we are deterring investment scammers who use City addresses to create an illusion of respectability that plays an important part in persuading people to part with their money,” said Steve Playle, trading standards manager at the City of London Corporation.

European regulators have proposed a clampdown on binary options trading.

UK-based companies selling binary options products are currently regulated by the Gambling Commission, but the Financial Conduct Authority last year proposed bringing this activity under its jurisdiction and restricting them.

At the time, the UK financial watchdog said this form of betting “did not appear to meet a genuine investment need” and was difficult for inexperienced investors to properly understand.

Trading in some binary options is banned in several other countries, including Canada.

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