SANDUSKY COUNTY, OH (WTOL) - The leader of an international binary options scheme was arrested at the Cleveland Hopkins International Airport early Tuesday morning.
A binary option is basically a yes or no investment. You are investing in the odds that the value of a commodity will be above a certain amount at a certain point in the future.
A 19-count federal indictment was unsealed, charging Jared J. Davis with defrauding investors out of at least $10 million.
Davis currently lives in Kalispell, Montana, but previously lived in the Columbus, Ohio area.
He was indicted on multiple charges including conspiracy to commit wire fraud, conspiracy to launder money, wire fraud, money laundering and obstruction of justice.
According to the indictment:
Davis's binary options businesses were not registered with the Securities and Exchange Commission nor the Commodity Futures Trading Commission, which have regulatory oversight, including registration and licensing.
Davis did not connect investors to a legitimate binary options exchange that would match investors who chose different options outcomes. Instead, Davis took the opposing position on each trade, similar to a casino or sports book.
This means that Davis only made money when investors lost money, providing a built-in incentive to employ manipulative and deceptive practices.
This includes a failure to disclose to victims that they were not matched with individual investors and that he could and did manipulate trading conditions.
He is accused of falsely telling investors their money was held in an account when he actually spent victim deposits as he received them, falsely portraying his employees as "brokers" or "analysts" when in fact they had no relevant experience or qualifications, falsely representing to victims they could withdraw their money at any time when Davis actually required unnecessary and burdensome documentation to closing an account, falsely representing to victims they could make "risk free," "insured," or "guaranteed" binary options trades if they deposited more money, and other deceptive practices.
Davis solicited victims through Internet marketing campaigns and call centers that he operated out of Sandusky, Costa Rica and St. Maarten.
He enlisted foreign nationals who, under Davis's direction, created an elaborate web of foreign corporations in the United Kingdom, Belize, Anguilla, Costa Rica, St. Vincent and the Grenadines and St. Maarten to receive and launder the victims' deposits.
"This defendant portrayed himself as a legitimate investment broker when he was really no better than a simple con man," said First Assistant U.S. Attorney David Sierleja. "He fleeced his victims out of $10 million by manipulating trading conditions, falsely telling investors his salespeople were financial analysts and using offshore companies to spend money as fast as it came in."
"Crime knows no borders, and neither does the financial investigative reach of IRS-Criminal Investigation," said IRS-Criminal Investigations Special Agent in Charge Ryan Korner. "IRS-CI will follow the money wherever it may be to ensure those who prey upon the finances of others are held accountable for their actions."
"Davis defrauded investors out of their hard-earned money and used their money for his personal real estate interests. The FBI, along with our law enforcement partners, will continue to identify, investigate and bring financial fraudsters to justice," FBI Special Agent in Charge, Stephen D. Anthony said.
This case was investigated by the Internal Revenue Service – Criminal Investigations and Federal Bureau of Investigation.
It is being prosecuted by Assistant U.S. Attorney Gene Crawford.