On November 11th, 2016, the Securities and Exchanges Commission fined a broker, EZTD Inc, a whopping $1.7 million for what is said to be misleading investors into online binary options trading before January 2014. EZTD Inc is an Israeli-based firm that manages binary options brands like EZinvest.com, EZinvest-sec.jp and EZTrader.com.
Basis of the Fines
The fines, in part, resulted from the failure of the online broker to reveal to the public about the risks that are inherent in binary options trading. Consequently, it is believed that investors have lost approximately $2 million.
In its part, the SEC maintains that the accused brokerage firm misrepresented facts when it informed investors of the “highly profitable” nature of binary options while there were inherent and significant risks that could result in untold losses of invested funds.
Also, there are various other reasons for the fines that EZTD Inc agreed to pay. They include:
- The failure to duly register the binary options
- The broker’s failure to register in the U.S. as a broker-dealer so as to get the required consent to sell investments to citizens of the country
Matters were made worse when instigations by the SEC revealed that, out of the 4,000 U.S. persons who invested in the binary options in question, less than 3% made a profit from them. Shockingly, the losses of these investors were pocketed by the EZTD, which amounts to a hefty sum given the number of persons who took part in the trade. A large percentage of the broker’s income originated from losses that clients suffered when trading and the firm failed to inform its customers that the odds were stacked against them. It is only after the SEC intervened that the true position was unearthed- EZTD main income source was not binary options trading but client losses. Again, the broker was found culpable for claims that its platform was a lucrative vehicle for individuals who wished to multiply their incomes.
Precautionary Measures for Investors
The director of Investor Education and Advocacy office at the SEC, Lori Schock recently stressed that his agency was still getting public complaints about binary options sites. Some of these issues relate to difficulties experienced by clients when attempting to make withdrawals from the named platforms, which he said was an indication that they had been defrauded. He advised clients to avoid depositing additional funds in such websites.
Referring to the EZTD matter, Stephanie Avakian, the Deputy Director of Enforcement at the SEC asked companies that deal with binary options to be more specific in their disclosure to the public. Such disclosures will help investors understand the risks and the fact that trading odds are stacked in favor of brokers.
In November 10 2016, the SEC issued an investor alert that the public may not have the full protection of the agency and the country’s security laws when they trade with unregistered brokers that aren’t under the scope of the agency. The SEC’s website is useful for individuals who want to confirm if the brokers they intend to trade with are licensed.
In Europe, a couple of countries have issued warnings on unlicensed binary options and forex brokers with the Netherlands considering the ban of the advertising of binary options and other investment products that are considered “toxic”.
From the warnings above, it is clear that trading with an unlicensed broker is a risky venture for investors. So, anyone wishing to trade in binary options must only deal with reputable parties such as CMC Markets to be on the safe side.
Origin of EZTD Inc
Initially, the firm’s incorporation was in 2002 in Nevada. It was later incorporated in 2015 in Delaware. Interestingly, the principal places of business of the firm were discovered to be in Tel Aviv, which is in Israel and Nicosia, a city in Cyprus.
Consequences of the SEC’s Action
In addition to parting with a $200,000 penalty, EZTD has been forced to forfeit about $1.5 Million in revenues it collected from clients in the U.S. Probably the most severe result of the whole issue is that the broker no longer sells binary options in the country. What is most shocking is that the brokerage never issued a statement to admit or deny wrongdoing on its part.