Don’t Fall For “All or Nothing” Investment Schemes

By Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy

Do you like making high-stakes decisions? Are you tempted by “all or nothing” investments? If you have been researching investments in search of high yield, low-risk investments, you may have come across something called, “binary options.” You may have even been sent an email or a message on social media asking you to look at a sales pitch.

You should be aware these pitches are often nothing more than frauds using flashy, high-pressure sales tactics to try to rob you of your hard-earned money.

There are unique characteristics and risks associated with all or nothing investment opportunities and there are several warning signs that might indicate the investment you are considering is really a scam. Taking a few minutes to educate yourself can prevent you from losing your life savings.

The Basics – A binary option or all or nothing type of options contract involves a payout that depends entirely on the outcome of a yes or no proposition. When the option expires, the investor receives either a set amount of cash, or nothing at all.  For example, you might pay $50 for a binary option contract that promises a 50 percent return if the company’s stock price goes above $5 when the option expires. So what happens if the stock doesn’t go above $5 by the time the option expires? Put simply, you lose ALL or nearly all of the money you invested, very fast. You take a huge risk when investing in these kinds of options, and you have to be comfortable with that level of risk.

Consider This – Be aware that binary options operators may not comply with the federal securities laws. That could mean they offer unregistered securities or operate as an unregistered broker-dealer or securities exchange. But the biggest risk is that binary options operators may actually be trying to scam you. 

Red Flags – The investment you are considering may actually be a scam if the seller:

  • Promises you a high return on your investment with no risk
  • Requests photocopies of personal documents such as your passport or utility bills
  • Uses aggressive sales tactics or threats to try to get you to invest more money
  • Pretends to be your friend as a way to gain your trust and encourage you to invest more money
  • Strings you along and puts up roadblocks when you try to withdraw your money
  • Refuses to pay out your winnings
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Many fraudulent exchanges are offshore and unregulated by U.S. laws, which can ultimately mean that they are beyond the reach of U.S. law enforcement. If you get scammed by one of these operators, it may be virtually impossible to get your money back. 

Big Takeaways

  • All or nothing investments involve a high-degree of risk, and many binary options promotions on the internet are frauds
  • Internet fraudsters may use binary options or other trendy investment buzzwords as a lure for investors when they really intend to rip you off

Know the risks, do your research and learn more about investing wisely on Investor.gov, the Securities and Exchange Commission’s website for investors.

The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This article expresses the author’s views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.

 

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