The US regulators continue their fight against binary options scams, with the United States Commodity Futures Trading Commission (CFTC) now asking for a heavy monetary penalty to be imposed on binary options marketers Michael Shah and his company Zilmil, Inc.
On Thursday, July 12, 2018, the CFTC filed a Motion for a Summary Judgement against Shah and Zilmil, with the Florida Middle District Court. The document requests that the Court orders the defendants to pay disgorgement in the amount of $18.67 million, as well as a civil monetary penalty of $56 million.
The CFTC argues that the heavy penalty reflects the gravity of the defendants’ offenses and the lack of mitigating circumstances.
The CFTC Complaint alleges that Michael Shah, acting through his company Zilmil, Inc., is the mastermind of an internet scam involving binary options. Between July 2012 and the present, Shah and Zilmil made more than $18.6 million in proceeds from their fraudulent scam.
Using fraudulent misrepresentations, the defendants induced people to deposit money with illegal binary options trading websites that purported to offer customers the ability to trade so-called binary options contracts online. The defendants acted as marketers for the following binary options websites: LBinary, Global Trader 365, Vault Options, TraderXP, Trade Rush, Banc de Binary, Citrades, OptionMint, OptionRally, RBOptions, Bloombex Options, Redwood Options, BeeOptions, Amber Options, OptionsXO, and SpotFN. None of these websites or their operators are or ever have been registered to offer binary options contracts to the public.
The marketers convinced customers to deposit money with the binary options websites by offering miracle software “trading systems” with names like 2014 Millionaire, Binary Genetic, and Millionaire Money Machine. For each person who deposited money with one of these trading websites, the marketers received a commission of as much as $450.
Shah acknowledged in chat messages and emails that the trading systems he promoted were fraudulent and did not work as advertised. Shah acknowledged as well that the customers who attempt to trade binary options will not make money, and that the customers’ funds will be misappropriated by the trading websites. He referred to his trading systems as “B.S.” and to the binary options websites as scammers.
Through the marketing of its so-called trading systems, the Zilmil and Shah were able to convince thousands of customers to deposit money with binary options websites. They used email marketing firms to send SPAM with misrepresentations about the trading systems to millions of people, paid video producers to make elaborate misleading video testimonials promoting the trading systems. The defendants also relied on other internet marketers, referred to as “affiliates,” to help spread the word about the binary options entities’ trading systems. These affiliates sent SPAM messages and links to websites provided by Shah to their own email lists in return for a share of commissions.
In testimony, the defendants have refused to answer any substantive questions about their operations. Instead, they have repeatedly invoked the rights against self-incrimination under Fifth Amendment.
And, since learning they were under investigation, the defendants have engaged in a campaign of witness-tampering, specifically instructing at least three witnesses to destroy all documents relating to the fraudulent conduct, the CFTC explains.
The regulator argues that Zilmil and Shah violated, inter alia, prohibitions in the Commodity Exchange Act and Commission Regulations against fraud by, and failure to register as, a commodity trading advisor.
The case is captioned Commodity Futures Trading Commission v. Scharf et al (3:17-cv-00774).