So a bunch of people came up with the idea of betting on the movement of an underlying asset they didn't have to own that was moving on exchanges that didn't have what they said they had in that same asset.
How big were these frauds though? Like do they set up multiple different companies to get a small number of marks for each one? The Youtube channel screenshot have a very low number of views. Thank you for the helpful links in the article and for your great research. :)
The article was confusing as to where the line is between gambling/trading platform and outright fraud. Binary options/CFDs are bad “investment” products, the same way other trading products (forex, levered ETPs, futures) are bad investments. The actual fraud seems to be not returning customer money. But that’s completely different from the underlying business.
I would have loved more clarity because it definitely sounds like a very wide brush to stroke the whole industry with.
The author was fair here because the options do not exist. The binary options are never actually sold; they are the excuse/not real. I did more research, and these guys make up some prices depending on the customer. Customers download software where the broker can remotely change the price on the screen. They give them a few wins hoping they will deposit more in the platform, then say they bet wrong and lost everything due to the binary nature of the option. Of course, the money won never existed because it was already stolen. If the customer asks to take some money off the table at any point, they say suddenly, you lost everything. Most customers blame themselves for the loss due to their inexperience. However, what they were betting on never existed. The underlying business does not exist. The loss is not from a casino's edge. There is a 100% chance of loss because they steal the money first, then losing money on options is the excuse to keep people quiet. It's brilliant psychologically, and that deserves more attention.
My point is this company looks like a small operator compared to some of the other people in the scam.
Can you explain how a binary options “broker” can change the terms of the contract without the client noticing OR how the firm can change S&P 500 levels? They make money through the spread, like every other company on finance.
I thought they made money through the spread as well at first. I hope this makes sense. It seems many operators use this type of software. I apologize I can't find the report I remember reading, but there are many cases similar to the above. Please let me know if I am missing something or misinterpreted something.
It sounds like you’re speculating/making up facts. Or you don’t understand how OTC trading works. Prices are “made up” the same way with Forex, bonds, or anything that’s not traded on an exchange. The way a bank would deal swaps is the exact same way: bespoke to every client. That alone does not define “fraud”.
Could you go into more detail on how over-the-counter trading works? Admittedly I don't know as much in that area. We are subscribed to similar publications, and I liked reading your previous response.
The software part is real to the extent that I know. I don't make stuff up. I can find the link, but on fbi.gov, I remember reading a report on how each software was set up to generate losers purposely. There was no consistency across different devices with the same bet. So one computer would say the price was this, and another was different. The software would also extend countdowns to expiration until the trade became a loss (this was in the code). If it wasn't a fraud, then despite the illiquidity, the price should be consistent across everyone with the same software, right? Furthermore, the software would not have this feature in the code. What am I missing here? I realize you are busy, but I appreciate your thoughts. :)
I also think it's important what you said here “The way a bank would deal swaps is the exact same way: bespoke to every client. That alone does not define fraud.” So thank you for explaining that to a fellow Substacker.
The loss from gambling comes from a negative expected value the loss there comes from fraud, you were never even playing the game with a negative expected value but it is a great excuse.
So a bunch of people came up with the idea of betting on the movement of an underlying asset they didn't have to own that was moving on exchanges that didn't have what they said they had in that same asset.
WHAT COULD POSSIBLY GO WRONG
Have a look at this tweet from a Spanish analyst. She is currently writing a huge article about that topic when she noticed that all podcasts and channel of FTX had been deleted. https://twitter.com/criptodaisy/status/1599733521177665537?s=20&t=GJuPi8ObbR2B1TM4AWLQig
Thx, as always.
How big were these frauds though? Like do they set up multiple different companies to get a small number of marks for each one? The Youtube channel screenshot have a very low number of views. Thank you for the helpful links in the article and for your great research. :)
The article was confusing as to where the line is between gambling/trading platform and outright fraud. Binary options/CFDs are bad “investment” products, the same way other trading products (forex, levered ETPs, futures) are bad investments. The actual fraud seems to be not returning customer money. But that’s completely different from the underlying business.
I would have loved more clarity because it definitely sounds like a very wide brush to stroke the whole industry with.
The author was fair here because the options do not exist. The binary options are never actually sold; they are the excuse/not real. I did more research, and these guys make up some prices depending on the customer. Customers download software where the broker can remotely change the price on the screen. They give them a few wins hoping they will deposit more in the platform, then say they bet wrong and lost everything due to the binary nature of the option. Of course, the money won never existed because it was already stolen. If the customer asks to take some money off the table at any point, they say suddenly, you lost everything. Most customers blame themselves for the loss due to their inexperience. However, what they were betting on never existed. The underlying business does not exist. The loss is not from a casino's edge. There is a 100% chance of loss because they steal the money first, then losing money on options is the excuse to keep people quiet. It's brilliant psychologically, and that deserves more attention.
My point is this company looks like a small operator compared to some of the other people in the scam.
Can you explain how a binary options “broker” can change the terms of the contract without the client noticing OR how the firm can change S&P 500 levels? They make money through the spread, like every other company on finance.
You got that was the giveaway. Some customers would independently check and see the mismatch and then report them to the government.
“computer program to generate manipulated data to cheat hundreds of investors out of their hard-earned savings”.
https://www.justice.gov/usao-edny/pr/defendant-indicted-swindling-investors-binary-options-and-crytocurrency-scheme
I thought they made money through the spread as well at first. I hope this makes sense. It seems many operators use this type of software. I apologize I can't find the report I remember reading, but there are many cases similar to the above. Please let me know if I am missing something or misinterpreted something.
It sounds like you’re speculating/making up facts. Or you don’t understand how OTC trading works. Prices are “made up” the same way with Forex, bonds, or anything that’s not traded on an exchange. The way a bank would deal swaps is the exact same way: bespoke to every client. That alone does not define “fraud”.
Could you go into more detail on how over-the-counter trading works? Admittedly I don't know as much in that area. We are subscribed to similar publications, and I liked reading your previous response.
The software part is real to the extent that I know. I don't make stuff up. I can find the link, but on fbi.gov, I remember reading a report on how each software was set up to generate losers purposely. There was no consistency across different devices with the same bet. So one computer would say the price was this, and another was different. The software would also extend countdowns to expiration until the trade became a loss (this was in the code). If it wasn't a fraud, then despite the illiquidity, the price should be consistent across everyone with the same software, right? Furthermore, the software would not have this feature in the code. What am I missing here? I realize you are busy, but I appreciate your thoughts. :)
I also think it's important what you said here “The way a bank would deal swaps is the exact same way: bespoke to every client. That alone does not define fraud.” So thank you for explaining that to a fellow Substacker.
The loss from gambling comes from a negative expected value the loss there comes from fraud, you were never even playing the game with a negative expected value but it is a great excuse.
For an entertaining riff on the Wirecard debacle, watch the German series ‘King of Stonks’ on Netflix. Dramedy captures the insanity.
should credit @__tubes__ as well...
Good stuff Mike!!!
FTX also had “tokenized stocks” that they offered too. Could this have any connection with the tokenized stock part of FTX?