Authored by Andrew Cross, Kari Larsen, and Anna Smith-Sandy
On March 18, 2020, the U.S. Commodity Futures Trading Commission (“CFTC”) Office of Customer Education and Outreach (“OCEO”) published a Customer Advisory warning market participants away from potential fraudulent schemes that may arise to take advantage of market volatility related to COVID-19.
In a related Press Release, CFTC Chief Communications Officer and Director of Public Affairs Michael Short stated, “[d]uring this period of market volatility, we want to ensure the public has important information to help detect and stop fraud”.
The Advisory warns consumers to be aware of biases and emotions that may affect trading decisions. When influenced by bias and emotions, market participants may find it difficult to see when a situation is “too good to be true.”
In addition, amongst other helpful information, the Advisory highlighted common tactics that should raise red flags for market participants, which include the following:
• Oversized returns, i.e., “[t]he promise of big money is often paired with guarantees or promises of little or no risk.”
• Urgency, i.e., being pressured to act now and before market conditions change. The Advisory explains, “[p]ressure to act quickly should signal you to tap the brakes. Verify what you’re told. Get it in writing. And, get opinions from others you trust.”
• Vague Credentials, i.e., “vague, unverifiable credentials such as ‘hedge fund genius,’ ‘trading legend,’ or ‘advisor to the biggest firms on Wall Street.’” Customers should always check an individual’s registration status with the CFTC or other regulators at cftc.gov/check.
• Testimonials, i.e., displays of customer reviews or happy customer statements showing hefty returns. The Advisory explains, “[t]hese are also intended to gain your confidence by confirming other ‘real’ people are doing this and succeeding, so it must be okay.”
• Reciprocity, i.e., offering something like a free gift, book, or other promise in exchange for an email address. The Advisory cautions that once fraudsters have this information, the “offers and asks get bigger and more frequent—until victims are bled dry.”
The OCEO is encouraging customers and other individuals to report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.
Additionally, customers may visit the CFTC coronavirus webpage for additional information.
Good day. Good to always be vigilant, especially in times of market volatility. DR2