Fraud Awareness & Prevention

Aviso al Consumidor En Espanol

Trading Futures and Options: Protection Against Fraud
Watch Out For These Warning Signs of Fraud
Kinds of Fraud to Watch Out For
Before You Trade: Know the Basics of Futures Trading
Report Suspicious Activities or Information
Ponzimonium: How Scam Artists are Ripping Off America

Trading Futures and Options: Protection Against Fraud

The CFTC's fraud awareness and prevention program involves

• educating futures market users
• protecting futures market participants and
• reviewing information and complaints that market participants send to us.  

The CFTC is the Federal agency that regulates the trading of commodity futures and options contracts in the United States and takes action against firms suspected of illegally or fraudulently selling commodity futures and options.

Before you trade in commodities or futures, know the kinds and signs of fraud and the basics of futures trading.

Protect yourself from the many types of commodities fraud that exist in today’s financial markets.

Be suspicious of a promise of high profits with low risk. Scams that falsely promise high profits with low risks are everywhere. Many are targeted at specific ethnic communities using the language of that community, from New York to South Florida, from the Southwest to California, and in other areas.

Be wary of any firm or individual offering to sell you commodity futures or options on commodities, including

• precious metals, such as silver or gold
• foreign currency, such as Euros, Yen, or Deutschmarks, or
• crude oil, heating oil, unleaded gas, or agricultural products such as corn, soybeans, or cattle.

Be wary of any firm or individual offering to trade your money for you in commodity futures or options, or to pool your money with other customers.

The commodity futures and option markets are very risky and you can lose your entire investment very quickly. Anyone who claims otherwise might be breaking the law. Always ask for proof.

Watch Out For These Warning Signs of Fraud

• Get-rich-quick schemes that sound too good to be true. There’s never a free lunch. Be very careful if you recently retired or came into money and you’re looking for a safe investment. You could be a very attractive target for a crook. Once your money is gone, it can be impossible to get it back.
• Predictions or guarantees of large profits. Always get as much information as you can about a firm or individual’s track record and verify that information—even if you know the people involved or they are recommended by friends or relatives. If you can’t get solid information about your investment and the company, don’t invest. Before you invest, always check it out with someone whose financial advice you can trust.
• Promises of little or no financial risk. Be suspicious if the firm or individual says there is little risk. Be suspicious if someone tells you that a written risk disclosure statement is only a routine formality. Written risk disclosure statements are important to read thoroughly and understand.
• Claims of trading in the “Interbank Market.” If a firm claims that they will trade foreign currency for you in the interbank market, or that you should trade in the interbank market, be cautious. The term “interbank market” refers to a loose network of currency transactions negotiated between financial institutions, usually banks and investment banks, and other large companies.
• Unsolicited telephone calls about investing. Be skeptical if someone you don’t know calls you about investment opportunities.
• Someone asking you to send cash immediately. Be very cautious if someone tries to convince you to send cash or transfer money to them immediately by overnight express, the Internet, mail, or any other method.

Kinds of Fraud to Watch Out For

Fraud Advisories from the CFTC provide information for you about other specific kinds of fraud.

Foreign Currency Trading (Forex)

• Foreign currency trading scams often attract customers through advertisements in local newspapers, radio promotions, or on attractive Internet sites. These advertisements may peddle high-return, low-risk investment opportunities in foreign currency trading, or even highly-paid currency-trading employment opportunities. Precious metals scams often work the same way.
• The CFTC urges you to be skeptical when promoters of foreign currency trading claim that their services or account management will earn high profits with minimal risks, or that employment as a currency trader will make you wealthy quickly.
  
  Take a look at the CFTC's brochure on forex fraud available in PDF or in HTML.

Commodity Pool Operators

• Commodity pool operators often solicit investments from friends, neighbors, co-workers, and fellow religious or social group members by using their reputations in the community or their personal relationships. In many cases, however, these investment schemes turn out to be fraudulent, and you can lose your entire investment, in many cases as a result of outright theft.
• Individuals and firms that fraudulently solicit funds from investors for commodity futures and options trading are usually not registered with the CFTC. They may operate “Ponzi” schemes in which little or none of the money sent in by investors is ever invested as promised in the commodity markets. Instead, the operator of the scam steals the funds, and creates the illusion of a successful business by using some of the money put in by later investors to pay phony “profits" to earlier investors. This tactic makes it appear to investors that the investment is actually making money, which in turn attracts additional investors. Be wary of such payouts if you do not fully understand their source.

Introducing Brokers

• Introducing brokers often use advertisements and infomercials on radio and television to promote commodity futures and options. These advertisements may claim that seasonal trends in the demand for certain commodities or well-known current events (such as a hurricane or a terror attack) create an opportunity to make big money by trading in commodity futures and options. They promise quick riches, like turning $5,000 into $20,000 in just a few months, with little risk.

Before You Trade: Know the Basics of Futures Trading

• Consider your financial experience, goals, and financial resources and know how much you can afford to lose above and beyond your initial payment.
• Understand commodity futures and option contracts and your obligations in entering into those contracts.
• Understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.
• Understand what it means to trade on margin: margin trading can make you responsible for losses much higher than the amount you invested.
• Know who to contact if you have a problem or question.

Registration Status and Disciplinary History: Check Out the Firm or Individual Trader

• Check registration status and disciplinary history at National Futures Association or call NFA at 800-676-4632
• Check online for disciplinary history with the CFTC or call us at 866-366-2382
• Contact your state’s securities commissioner
• Contact your state Attorney General’s Office and state banking, insurance, and securities regulators (which often have their own websites)
• Contact the Better Business Bureau
• Contact the National Fraud Information Center
• Find out if firms or counterparties with whom you plan to trade are registered or regulated institutions or entities that are outside the CFTC's jurisdiction by checking the lists of regulated institutions on the following websites (some institutions outside the CFTC's jurisdiction do not appear on any of these lists or in any other readily-available places):
  • Federal Reserve Board
  • Federal Financial Institutions Examination Council
  • Federal Deposit Insurance Corporation
  • U.S. Securities and Exchange Commission
  • The Office of the Comptroller of the Currency
  • Office of Thrift Supervision
  • National Credit Union Association
  • National Association of Securities Dealers

Report Suspicious Activities or Information

To report possible violations of commodity trading laws,

• call the CFTC’s Division of Enforcement at 866-FON-CFTC (866-366-2382)
• submit our online form
• submit a Form TCR under our whistleblower program or
• send us a letter addressed to

CFTC
Office of Cooperative Enforcement
1155 21st Street, NW
Washington, DC 20581