COMMISSION ADVISORY

BEWARE OF

FOREIGN CURRENCY TRADING
FRAUDS



- Have you been solicited to
trade foreign currency contracts (also known as "forex")?
- If so, you need to know how
to spot foreign currency trading frauds.

The United States Commodity Futures Trading Commission (CFTC), the federal agency
that regulates commodity futures and options markets in the United States, warns
consumers to take special care to protect themselves from the various kinds of frauds
being perpetrated in today's financial markets, including those involving so-called
"foreign currency trading."

A new federal law, the Commodity Futures Modernization Act of 2000, makes clear that
the CFTC has the jurisdiction and authority to investigate and take legal action to close
down a wide assortment of unregulated firms offering or selling foreign currency futures
and options contracts to the general public. In addition, the CFTC has jurisdiction to
investigate and prosecute foreign currency fraud occurring in its registered firms and
their affiliates.

The CFTC has witnessed the increasing numbers and growing complexity of financial
investment opportunities in recent years, including a sharp rise in foreign currency
trading scams. While much foreign currency trading is legitimate, various forms of
foreign currency trading have been touted in recent years to defraud members of the
public.

Currency trading scams often attract customers through advertisements in local
newspapers, radio promotions or attractive Internet sites. These advertisements may tout
high-return, low-risk investment opportunities in foreign currency trading, or even
highly-paid currency-trading employment opportunities. The CFTC urges you to be skeptical
when promoters of foreign currency trading claim that their services or account
management will earn high profits with minimal risks, or that employment as a currency
trader will make you wealthy quickly.

Understanding Legitimate Foreign Currency Operations

Generally speaking, foreign currency futures and options contracts may be traded
legally on an exchange or board of trade that has been approved by the CFTC.

Even where currency trading does not occur on a Commission-approved exchange or
board of trade, the trading can be conducted legally where, generally speaking, one or
both parties to the trading is (or is a regulated affiliate of) a bank, insurance
company, registered securities broker-dealer, futures commission merchant or other
financial institution, or is an individual or entity with a high net worth.

Where forex firms do not fall into the categories of regulated entities outlined above
and engage in foreign currency futures and options transactions with or for retail
customers who do not have high net worths, the CFTC has jurisdiction over those firms and
their transactions.

Warning Signs of Fraud

If you are solicited by a company that claims to trade foreign currencies and asks you
to commit funds for those purposes, you should be very careful. Watch for the warning
signs listed below, and take the following precautions before placing your funds with any
currency trading company.

1. Stay Away From Opportunities That Sound Too Good to Be True

Get-rich-quick schemes, including those involving foreign currency trading, tend to be
frauds.

Always remember that there is no such thing as a "free lunch." Be especially
cautious if you have acquired a large sum of cash recently and are looking for a safe
investment vehicle. In particular, retirees with access to their retirement funds may be
attractive targets for fraudulent operators. Getting your money back once it is gone can
be difficult or impossible.

2. Avoid Any Company that Predicts or Guarantees Large Profits

Be extremely wary of companies that guarantee profits, or that tout extremely high
performance. In many cases, those claims are false.

The following are examples of statements that either are or most likely are
fraudulent:

- "Whether the market moves up or down, in the currency
market you will make a profit."
- "Make $1000 per week, every week"
- "We are out-performing 90% of domestic
investments."
- "The main advantage of the forex markets is that there
is no bear market."
- "We guarantee you will make at least a 30-40% rate of
return within two months."

3. Stay Away From Companies That Promise Little or No Financial Risk

Be suspicious of companies that downplay risks or state that written risk disclosure
statements are routine formalities imposed by the government.

The currency futures and options markets are volatile and contain substantial risks
for unsophisticated customers. The currency futures and options markets are not the place
to put any funds that you cannot afford to lose. For example, retirement funds should not
be used for currency trading. You can lose most or all of those funds very quickly
trading foreign currency futures or options contracts. Therefore, beware of companies
that make the following types of statements:

- "With a $10,000 deposit, the maximum you can lose is
$200 to $250 per day."
- "We promise to recover any losses you have."
- "Your investment is secure."

4. Don't Trade on Margin Unless You Understand What It Means

Margin trading can make you responsible for losses that greatly exceed the
dollar amount you deposited.

Many currency traders ask customers to give them money, which they sometimes refer to
as "margin," often sums in the range of $1,000 to $5,000. However, those
amounts, which are relatively small in the currency markets, actually control far larger
dollar amounts of trading, a fact that often is poorly explained to customers.

Don't trade on margin unless you fully understand what you are doing and are
prepared to accept losses that exceed the margin amounts you paid.

5. Question Firms That Claim To Trade in the "Interbank
Market"

Be wary of firms that claim that you can or should trade in the "interbank
market," or that they will do so on your behalf.

Unregulated, fraudulent currency trading firms often tell retail customers that their
funds are traded in the "interbank market," where good prices can be obtained.
Firms that trade currencies in the interbank market, however, are most likely to be
banks, investment banks and large corporations, since the term "interbank
market" refers simply to a loose network of currency transactions negotiated between
financial institutions and other large companies.

6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or
Otherwise

Be especially alert to the dangers of trading on-line; it is very easy to transfer
funds on-line, but often can be impossible to get a refund.

It costs an Internet advertiser just pennies per day to reach a potential audience of
millions of persons, and phony currency trading firms have seized upon the Internet as an
inexpensive and effective way of reaching a large pool of potential customers.

Many companies offering currency trading on-line are not located within the United
States and may not display an address or any other information identifying their
nationality on their Web site. Be aware that if you transfer funds to those foreign
firms, it may be very difficult or impossible to recover your funds.

7. Currency Scams Often Target Members of Ethnic Minorities

Some currency trading scams target potential customers in ethnic communities,
particularly persons in the Russian, Chinese and Indian immigrant communities, through
advertisements in ethnic newspapers and television "infomercials."

Sometimes those advertisements offer so-called "job opportunities" for
"account executives" to trade foreign currencies. Be aware that "account
executives" that are hired might be expected to use their own money for currency
trading, as well as to recruit their family and friends to do likewise. What appears to
be a promising job opportunity often is another way many of these companies lure
customers into parting with their cash.

8. Be Sure You Get the Company's Performance Track Record

Get as much information as possible about the firm's or individual's
performance record on behalf of other clients. You should be aware, however, that It may
be difficult or impossible to do so, or to verify the information you receive. While
firms and individuals are not required to provide this information, you should be wary of
any person who is not willing to do so or who provides you with incomplete information.
However, keep in mind, even if you do receive a glossy brochure or sophisticated-looking
charts, that the information they contain might be false.

9. Don't Deal With Anyone Who Won't Give You Their
Background

Plan to do a lot of checking of any information you receive to be sure that the
company is and does exactly what it says.

Get the background of the persons running or promoting the company, if possible. Do
not rely solely on oral statements or promises from the firm's employees. Ask for all
information in written form.

If you cannot satisfy yourself that the persons with whom you are dealing are
completely legitimate and above-board, the wisest course of action is to avoid trading
foreign currencies through those companies.

10. Warning Signs Of Commodity "Come-Ons"

If you are solicited by a company to purchase commodities, watch for the warning signs
listed below:

- Avoid any company that predicts or guarantees large
profits with little or no financial risk.
- Be wary of high-pressure tactics to convince you to
send or transfer cash immediately to the firm, via overnight delivery companies, the
internet, by mail, or otherwise.
- Be skeptical about unsolicited phone calls about
investments from offshore salespersons or companies with which you are unfamiliar.
- Prior to purchasing:
- Contact the CFTC.
Visit the CFTC's forex
fraud web page.
Contact the National Futures Association to see
whether the company is registered with the CFTC or is a members of the National Futures
Association (NFA). You can do this easily by calling the NFA (800-621-3570 or
800-676-4NFA) or by checking the NFA's registration and membership information on its
website at www.nfa.futures.org/basicnet/.
While registration may not be required, you might want to confirm the status and
disciplinary record of a particular company or salesperson.
Get in touch with other authorities, including your
state's securities commissioner (www.nasaa.org), Attorney General's
consumer protection bureau (www.naag.org/), the Better Business
Bureau (www.bbb.org) and the
National Futures Association (www.nfa.futures.org).
Be sure you get all information about the company
and verify that data, if possible. If you can, check the company's materials with
someone whose financial advice you trust.
Learn all possible information about fees charged,
and the basis for each of these charges.
If in doubt, don't invest. If you can't get
solid information about the company, the salesperson, and the investment, you may not
want to risk your money.
- Contact the CFTC.
- Visit the CFTC's forex
fraud web page.
- Contact the National Futures Association to see
whether the company is registered with the CFTC or is a members of the National Futures
Association (NFA). You can do this easily by calling the NFA (800-621-3570 or
800-676-4NFA) or by checking the NFA's registration and membership information on its
website at www.nfa.futures.org/basicnet/.
While registration may not be required, you might want to confirm the status and
disciplinary record of a particular company or salesperson.
- Get in touch with other authorities, including your
state's securities commissioner (www.nasaa.org), Attorney General's
consumer protection bureau (www.naag.org/), the Better Business
Bureau (www.bbb.org) and the
National Futures Association (www.nfa.futures.org).
- Be sure you get all information about the company
and verify that data, if possible. If you can, check the company's materials with
someone whose financial advice you trust.
- Learn all possible information about fees charged,
and the basis for each of these charges.
- If in doubt, don't invest. If you can't get
solid information about the company, the salesperson, and the investment, you may not
want to risk your money.

11. More Information and Contacts

- Questions concerning this advisory may be addressed to the
CFTC's Office of Public Affairs at (202) 418-5080.

Commodity Futures Trading Commission
Three LaFayette Centre
1155 21st Street, N.W.
Washington, D.C. 20581


- The Commodity Futures Modernization Act is available in our
Law and Regulation page.
(requires an Adobe Acrobat reader, which can be downloaded for free from www.adobe.com and numerous other sites
on the Internet)

- For other consumer advisories concerning possible
fraudulent activity in the commodity futures and options industry, click on the Customer Protection page.
- Contact the National Fraud Information Center (www.fraud.org).

- The CFTC's website also offers general information
about trading in the commodity futures and options markets. You may wish to visit our
Before You Trade page.

- To find out whether firms or counterparties with whom you
plan to trade are registered or regulated institutions or entities that are outside the
CFTC's jurisdiction, you can check the lists of regulated institutions on the
following websites. Some institutions outside the CFTC's jurisdiction do not appear
on any of these lists or in other readily-available places:
- Federal Reserve Board (www.federalreserve.gov)
Federal Financial Institutions Examination Council
(www.ffiec.gov)
Federal Deposit Insurance Corporation (www.fdic.gov)
U.S. Securities and Exchange Commission (www.sec.gov)
The Office of the Comptroller of the Currency (www.occ.treas.gov)
Office of Thrift Supervision (www.ots.treas.gov)
National Credit Union Association (www.ncua.gov)
National Association of Securities Dealers Regulation, Inc.
(www.nasdr.com)
All U.S. Government web sites can be located through links
at www.firstgov.gov
Your state Attorney General's office and state banking,
insurance and securities regulators (which often have their own web sites).
- Federal Reserve Board (www.federalreserve.gov)
- Federal Financial Institutions Examination Council
(www.ffiec.gov)
- Federal Deposit Insurance Corporation (www.fdic.gov)
- U.S. Securities and Exchange Commission (www.sec.gov)
- The Office of the Comptroller of the Currency (www.occ.treas.gov)
- Office of Thrift Supervision (www.ots.treas.gov)
- National Credit Union Association (www.ncua.gov)
- National Association of Securities Dealers Regulation, Inc.
(www.nasdr.com)
- All U.S. Government web sites can be located through links
at www.firstgov.gov
- Your state Attorney General's office and state banking,
insurance and securities regulators (which often have their own web sites).