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The Scam of Binary Options

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By Eve Mykytyn

Israel’s binary options business has been closed down by Israeli lawmakers as of the end of January 2018. This move should have come as a relief to investors and law enforcement officers world wide as the insidious binary options business had cost investors billions of dollars and run roughshod over laws in other countries. Despite the deceptive nature of the business, Israel allowed the binary options business to develop and operate openly, and with support from authorities, for over 10 years.

Beginning around 2006 Israelis entered the business of ‘binary’ options.  A binary option is simply a bet an investor places on the price of a given security at a set time in the future.  For instance, if an investor bets that the price of stock X will be at least $65 on Friday, the broker who takes the bet is betting that the price of X will be under $65 on Friday. Neither buyer nor seller owns any interest at all in the underlying stock X at any time during the transaction. Brokerages make money on binary options by selling losing bets to investors.

Israeli brokerages identified potential investors by using call centers that employed primarily young immigrants whose native language was not Hebrew so that they could easily pretend to be calling another city or country, usually a  financial center like London or Frankfurt. Employees were taught the techniques of high pressure sales and were paid based upon the investments they generated. (Seehttp://www.timesofisrael.com/the-wolves-of-tel-aviv-israels-vast-amoral-binary-options-scam-exposed/)

Once an investor was hooked, he was matched with a broker who would negotiate the investment.  The investor who had been brought in by promises of riches was not told that the brokerage firm had the other side of the bet. The results of the bets were determined by a ‘trading platform’ (instead of actual real time stock market quotes) and, of course, the trading platform was controlled by the brokerage firm.

If an investor came to understand that he had been duped or wanted his money returned for whatever reason, his money was suddenly unavailable.

Clearly, most of the victims were not sophisticated investors with knowledge of pricing stocks or options. This created additional value to the brokerage firm who, having finished with an investor, would sell his name to other schemers.

The Israeli police responded to investor complaints by telling the caller that he had to come to the police station in person to file a complaint. Even when fraud charges were directly filed, as they ultimately were, the police failed to act and not a single Israeli binary options villain, in an industry that fleeced billions of dollars, has ever been convicted in Israel.

Finally, in March, 2016, The Times of Israel exposed the scheme in an article entitled ‘The Wolves of Tel Aviv.’ The article decried the fact that for thousands of Israelis their job was to pretend to be a financial expert, pretend  to be based in one or another global financial capital, call people all over the world and use every foul means to defraud customers.

Shmuel Hauser, the head of Israel Securities Authority (the Israeli equivalent of the SEC), initially claimed to know nothing of the scheme. When Netanyahu was informed, his only response was to demand that binary options trading be shut down all over the world.

 Finally, in 2016, Hauser introduced a bill in the Knesset to shut down binary options trading. The Knesset duly acted, and shut down binary options trading but only for Israeli investors.

Apparently the Hebrew press ignored the issue. Maybe this is because, after spring 2016, only  non Israelis were being defrauded. Perhaps the Israeli press was intimidated. After breaking the story, The Times of Israel was subjected to a ‘welter of legal and illegal threats’ and intimidation some of which were delivered by Israel’s most prestigious law firms no doubt paid for by the billions scammed.

In October, 2017 following the arrest by the FBI of Lee Elbaz,  CEO of Yukom Communications Ltd, an Israeli binary options company, for wire fraud and conspiracy, the Knesset finally passed legislation closing down binary options brokers three months in the future. What justification could there have been for allowing brokers an additional three months to perpetuate their fraudulent activities? In any event, only binary options trading is prohibited, leaving plenty of  alternatives open to the former binary options  brokers.

And indeed, the brokers are already back up and running, having transferred their attentions to cryptocurrency. They have re-branded their scheme removing the word ‘binary’ and replacing it with ‘crypto.’ Their business continues to be stealing money from unsuspecting people worldwide who are wrongly led to believe that they are investing in something when in fact there is no underlying asset at all. The financial website Finance Feeds has done extensive research into binary options, an excellent summary of the selling techniques can be found here.

 Finance Feeds’ conclusion was :

“They [binary options brokers] are as far removed from the leaders of the genuine financial services industry globally as cheese is from thermonuclear fission, however they clearly understand that they live and operate from a region in which pretty much anything goes. No other OECD nation on the planet has allowed a fraudulent business to mimic the genuine financial services business…

The same country that allows cartels to block the import of competing goods to the supermarket sector, allows families to run national banks, and maintains a criminal family which operates the country’s national port authority, taking imported goods, impounding them and then selling them via a network of equally disreputable individuals is the same country that is allowing semi-literate binary options fraudsters to have their cake and eat it.”

 

 

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