Washington, D.C. – Commodity Futures Trading Commission (CFTC) Commissioner Michael V. Dunn spearheaded a joint investor alert with the North American Securities Administrators Association (NASAA) on May 7, 2007, warning of widespread fraud in the off-exchange foreign currency (forex) trading market.
The alert highlighted the extreme risks associated with retail forex trading, characterizing it as often “at best extremely risky, and at worst, plagued by outright fraud.” Dunn, chair of the CFTC’s Forex Outreach and Education Task Force, emphasized the vulnerability of individuals with internet access to these scams, stating the damage to investors is “incalculable.”
Regulators cautioned that while forex trading can be legitimate for governments and large institutions, the average investor should approach these complex markets with extreme caution. Joseph P. Borg, Director of the Alabama Securities Commission and President of NASAA, advised investors to avoid any investment they do not fully understand.
The CFTC and state securities regulators have collaborated on numerous forex fraud cases in recent years, successfully shutting down illegal operations totaling tens of millions of dollars. In 2005, a joint effort with the California Corporation Commission dismantled a $2 million scam. The same year, a cooperative enforcement effort with the Texas State Securities Board halted an $11 million illegal operation. Further back, in 2003, a $40 million scam was stopped with the Oregon Department of Consumer and Business Services, and in 2002, a scheme costing investors nearly $15 million was shut down in conjunction with the SEC and the Utah Division of Securities.
Forex contracts involve the buying or selling of foreign currency at a fixed price, with profits or losses determined by fluctuating exchange rates. Regulators warned that the volatility of these markets can lead to rapid and substantial losses. Even legitimate forex investments are considered extremely risky, and investors were urged to only invest what they can afford to lose.
Forex scams typically lure customers with sophisticated advertising promising high returns through leverage—the ability to control a large amount of currency with a small initial investment. These promotions often falsely suggest guaranteed profits with minimal risk.
Source: CFTC.gov
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