Recent developments in investment fraud and scams: Contracts for Difference (‘CFD’) spread betting and binary options and foreign exchange (‘Forex’) sometimes collectively known as ‘forbin’ – the UK experience.

BARNES, PAUL (2018): Recent developments in investment fraud and scams: Contracts for Difference (‘CFD’) spread betting and binary options and foreign exchange (‘Forex’) sometimes collectively known as ‘forbin’ – the UK experience.

Abstract

This paper discusses investor trading schemes for CFDs, spread betting, binary options and forex, what are effectively financial derivatives, designed for investors to speculate on market movements. It is argued that it is not possible for investors to consistently ‘beat the market’ unless they have inside information and frequent trading will result in losses. It is also shown how these derivatives are used in scams and frauds designed to dupe naïve investors. The final section of the paper examines how the UK regulators, principally the Financial Services Authority (later the Financial Conduct Authority) have attempted to combat fraud and abuse and their prosecuting and preventative efforts.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stocks, shares, securities, contracts for difference, CFD, spread betting, binary options, forex, forbin, scam, fraud.
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance; K - Law and Economics > K2 - Regulation and Business Law > K22 - Business and Securities Law; K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K42 - Illegal Behavior and the Enforcement of Law

References

Bachelier, L. (1900) ‘Theorie de la speculation’, , Paris, Gauthier-Villars.

Barnes, P. (2009) Stock Market Efficiency, Insider Dealing and Market Abuse, Aldershot, UK, Gower.

Barnes, P. (2011a) ‘Minsky’s financial instability hypothesis, accounting information and the 2007-9 financial crisis in the UK and US’, Accounting History, 12: 29-53.

Barnes, P. (2011b) ‘Insider dealing and market abuse: The UK’s record on enforcement’, International Journal of Law, Crime and Justice, 39: 174-89.

Barnes, P. (2013) ‘Stock and Securities Fraud’ in Encyclopaedia of White-collar & Corporate Crime, (Salinger, L. and J.G. Golson, eds) Sage Publications, California, Thousand Oaks, 873-88.

Barnes, P. (2016) ‘Stock market scams, shell companies, penny shares, boiler rooms and cold calling: the UK experience’ International Journal of Law, Crime and Justice, 48: 50-64.

Berkowitz, H. (2016) ‘In defence of the Forex and Binary Options Industries’, 4 November, available at: www.financemagnates.com/binary-options/bloggers/defense-forex-binary-options-industries/

Brearley, R.A. (1969) An introduction to risk and return from common stocks, Cambridge, Mass, M.I.T Press.

Brearley, R.A. and S.C. Myers (2016) Principles of Corporate Finance, 12th edition, New York, McGraw Hill/Irwin.

Cootner, P.H. (1964) The random character of stock market prices, Cambridge, Mass, M.I.T Press.

Keynes, J.M. (1936) The General Theory of Employment, Interest and Money, London, Macmillan Press.

Kindleberger, C.P. and R.Z. Aliber (2011) Manias, Panics, and Crashes: A History of Financial Crises, 6th edit., Basingstoke, John Wiley & Sons.

Mackay, C. (1841) Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, London, Richard Bentley.

Minsky, H.P. (1975) John Maynard Keynes, New York, Columbia University Press.

Minsky, H.P. (1977) ‘A Theory of Systemic Fragility’ in Altman, E.I and A.W. Sametz, (eds) Financial Crises: Institutions and Markets in a Fragile Environment, New York, John Wiley and Son.

Minsky, H.P. (1982) ‘The Financial - Instability Hypothesis: Capitalist Processes and the Behavior of the Economy’ in C.P. Kindleberger and J. Laffargue (eds.) Financial Crises: Theory, History, and Policy. Cambridge, Cambridge University Press.

Minsky, H.P. (1989) ‘Comment on ‘Economic Implications of Extraordinary Movements in Stock Prices’, Brookings Papers on Economic Activity, 2:173-189.

Working, H. (1934) ‘A random difference series for use in the analysis of time series’ Journal of the American Statistical Association, 29: 11-24.