The North American Securities Administrators Association ("NASAA") encouraged investors to carefully evaluate the circumstances before choosing to invest in binary options.
In an "Informed Investor Advisory," NASAA explained that binary options are "all-or-nothing investment contracts" in which investors attempt to predict the value of an underlying asset at an agreed-upon date or time in the future. If the investor correctly predicts the asset price at the end of the contract, which can be just a matter of minutes, the investor receives the payout agreed upon in the contract. Binary options are primarily sold through online trading platforms, which often do not adhere to regulatory requirements. The lack of regulatory accountability leads to expanded risk of misconduct, including theft and disclosure-related violations.
To reduce the risk of falling victim to scammers, NASAA encouraged investors to be wary of the following warning signs in relation to binary options: (i) unsolicited emails or phone calls soliciting investments, (ii) high-pressure sales tactics such as threatening phone calls, (iii) requests for personal information, and (iv) lack of publicly available information about the firm. NASAA also cautioned investors to be aware of "reload" schemes, in which scammers re-target affected customers by claiming to be a government entity that will help to recover lost assets in exchange for a fee. Finally, NASAA urged investors to verify the registration status of a business offering a binary options product before making an investment.
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