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

According to the SEC, Banc de Binary Ltd. has been selling binary options to U.S. investors without registering the securities as required by U.S. law. “Just because foreign companies can more easily communicate with American investors doesn't mean they should skirt our longstanding laws that protect investors by requiring registration of securities,” says Andrew J. Ceresney, co-director of the SEC's division of enforcement. “Banc de Binary contacted U.S. investors through the Internet and YouTube but completely disregarded the U.S. securities laws' registration requirements. We will aggressively combat such combat no matter where it originates.”

The SEC and Commodity Futures Trading Commission (CFTC) jointly issued an Investor Alert bulletin against fraudulent promotions of binary options sold through Internet-based trading platforms. 

“Investors should be aware of the potential for fraud in this area, as well as of the reality that they can lose their entire investment,” says Lori Schock, director of the SEC's office of investor education and advocacy. “We strongly encourage investors to check the background of brokers and advisers and trading platforms before making a decision to invest. If investors can't obtain simple background information, such as whether the financial professional is registered with the SEC or FINRA, then they should be extremely wary.”