The Securities and Exchange Commission (SEC) today announcedthat it has charged a Cyprus-based company with selling binaryoptions illegally in the United States—and warned U.S. investorsagainst buying them. A binary option is a type of option thateither pays a fixed amount of cash at the end of the term, or elsepays nothing at all.

According to the SEC, Banc de Binary Ltd. has been sellingbinary options to U.S. investors without registering the securitiesas required by U.S. law. “Just because foreign companies can moreeasily communicate with American investors doesn't mean they shouldskirt our longstanding laws that protect investors by requiringregistration of securities,” says Andrew J. Ceresney, co-directorof the SEC's division of enforcement. “Banc de Binary contactedU.S. investors through the Internet and YouTube but completelydisregarded the U.S. securities laws' registration requirements. Wewill aggressively combat such combat no matter where itoriginates.”

The SEC and Commodity Futures Trading Commission (CFTC) jointlyissued an InvestorAlert bulletin against fraudulent promotions of binary optionssold through Internet-based trading platforms.

“Investors should be aware of the potential for fraud in thisarea, as well as of the reality that they can lose their entireinvestment,” says Lori Schock, director of the SEC's office ofinvestor education and advocacy. “We strongly encourage investorsto check the background of brokers and advisers and tradingplatforms before making a decision to invest. If investors can'tobtain simple background information, such as whether the financialprofessional is registered with the SEC or FINRA, then they shouldbe extremely wary.”