Forex Fraud Cases

Forex Fraud CasesForeign exchange fraud has been growing in recent years. Driven by the recession, and the natural desire to succeed, many people are vulnerable to arguments guaranteeing a high rate of return. Despite the buyer knowing less about foreign stocks than the home stock market, somehow buyers become convinced they can make a killing overseas. The foreign exchange market is often built on paper transactions; real money is not passed but positions in future transactions. Most often, the foreign markets trade positions on currency.

The foreign exchange market is different from holding stocks of a company, say Ford. On this exchange you are betting someone will lose. At best, each trader will come out with zero-gain. However, since most investors use traders, the zero gain is always negative do to this cost. Worse, most professional traders only make money with their clients when their clients lose money. Lastly, the use of the internet has extended these schemes to a world wide audience, with many being located in countries all over the world.

WinCapita in Finland is an example of such a scheme. Set up as investment group for the small investor, this group lured in many small investors by allowing them with a small down payment to purchase a position in a commodity. In reality, the company never bought or owned commodity positions. The company did watch the commodity. The company never paid out winners to its customers, but still charged fees for becoming a member of the group. Some members were paid money when they brought in new members. Eventually, the commodity would fall, and each position holder would lose his money, or have to give more to stay in the group. This company is still being prosecuted for fraud. This investigation began in 2008.

Another example of Russel Cline of Portland, Oregon. Cline, an unemployed painter, had started and run Orion International in 1998, another firm dedicated to making its clients generous returns on their investments of up to 200 percent. He and his employees were able to secure investments of over $50 million dollars US. The money given to buy stocks was simply spent by the employees; it has held on paper until the stocks fell and the money was claimed by the company. Eventually Cline could not take in enough money to sustain his lifestyle and business, and was investigated due to complaints by investors and creditors. Cline received 8 years in prison and is due out in 2012. He still has to pay back some 33 million dollars to clients.

More recent is Jeffry Lowrence’s company First Capital Savings and Loan based in Aukland. This company alleged it was trading in foreign exchange contracts, but in fact, never invested in any such contracts. It merely took its clients money, paid back some clients from other investors and spent the money on their selves. Bilking its clients out of over 40 million US dollars, Lowrence was living in Panama on his profits. Lowrence has a past history of conducting several prior similar Ponzi schemes, which if his clients had checked was easy to find out about.

In New Zealand, major fraud cases are investigated by the Security Fraud Office or SFO. According to their 2011 year end report, the SFO is investigating 34 cases involving losses of over one billion dollars. Involved in these loses are 85,000 separate individuals. 28 persons where charged, seven were found guilty in court and 12 plead guilty to fraud.

Clearly investing in the foreign exchanges requires the use of a well established company. Your returns won’t be as high, but at least you will see those that you do earn paid to your account. For more information on foreign exchange fraud, contact LucrorFX today.

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