Forex Fraud: Scam Artists are Cloaked in High-Return/Low-Risk Claims

The con artists in our midst tend to congregate wherever money changes hands, but when you combine the Internet and dramatic popularity among consumers, you create a magnet that attracts the criminal element of our society like nothing else.  Retail forex trading has come of age in the past ten years, and for the last five, its popularity has been nothing short of meteoric due to its flexibility and easy access through Internet trading platforms.

The ability to double your money with 100:1 leverage programs offered by brokers, similar to margin with stocks but without the interest charge or long-holding period, has also been part of the allure.  Some offshore brokers offer 500:1 leverage, but most traders understand the risks involved.  However, the inexperienced “others” soon learn the lesson can be quite painful, and in many cases, the broker has been found to be unscrupulous.

The Commodity Futures Trading Commission, or CFTC, is an independent agency of the U.S. government, charged with regulating the retail forex trading industry, among other things.  Although, the CFTC has been plagued by limited budgets and manpower, it has performed a yeoman’s task in ridding this nascent investment activity of crooks.  It has been a major partner in policing fraudulent forex brokers, putting criminal fund managers behind bars, and advising consumers of common forex scams.  From December 2000 through September 2009, more than 26,000 customers have recovered over $476 million in 114 forex fraud cases conducted by the CFTC.

A typical forex scam may be one of these three types:

• High Yield Investment Program:  HYIPs proclaim that outrageous returns can be had in currency trading with very little risk.  Various Ponzi-type schemes are the avenue for the crooks in this arena.  If it sounds too good to be true, it most likely is;
• Unsolicited Offers:  Crooks are very adept at using mailing lists, the Internet, and telemarketing schemes to appeal to the greed within us all.  Beware of unsolicited tips or promises of the “secret”;
• High Pressure Salesmen:  Law enforcement officials will tell you that the “scam” is all about the “sell”.  If you are pressured to put your money into a “can’t lose” deal, walk the other way.

While retail forex trading has only been with us for a short time, the investment vehicle, like every other form of investing, has its own hallowed hall of shame filled with criminals that have racked up huge gains, lived high lifestyles, and bilked the unsuspecting public out of millions.  Perhaps not on the scale of billions as with Bernie Madoff, these crooks were arrested and prosecuted over the past decade:

• Russell Cline attracted 600 investors and scammed off $16 million;
• Richard Matthews Jr. pooled in over $30 million from his investors;
• Joel N. Ward, a small trader with big dreams, took one small wrong step after another and ended up scamming his investors of over $11 million;
• Russell Erxleben, a University of Texas grad who played ten seasons in the NFL, deceived over 500 investors out of $35 million.

The detection of investment fraud has been rampant in our society of late due primarily to the economic downturn that prompted many investors to demand withdrawals.  When funds were not available, law enforcement officials were quick with arrest warrants and due process.  None of us ever expects to be a victim of investment fraud, but it does happen quite frequently.  In order to mitigate this type of situation from occurring time and again, investors must allow caution to overrule greed.  Be aware, be skeptical, and be safe!