A US court sentenced Lee Elbaz, CEO of Yukom Communications, to a 22-year prison term late last week for using binary options to defrauding thousands of investors throughout the world in a $140 million fraud. She is not the only one. The US has indicted 15 more Israeli Yukom employees for binary options fraud. Five Israelis who signed state witness agreements with the US authorities testified that Elbaz had instructed them to lie to their customers.
In addition, sources inform "Globes" that the FBI and the US Department of Justice are investigating two other Israeli companies that dealt in binary options and are suspected of defrauding many investors around the world of tends of millions of dollars. As far as known, the investigation against these two companies is still in the initial stages, and may also be extended to Israel in the coming months.
Yukom is merely a drop in the ocean of an extremely prosperous Israeli industry. The heyday of commercial binary options companies lasted for four years before coming to an end in 2017 with the passage of a Knesset law making such activity illegal, and making it illegal to offer binary options in Israel and elsewhere. At the industry's peak, commercial binary options companies employed thousands of people, mainly in their offices in the vicinity of the Ramat Gan Diamond Exchange.
A source familiar with the industry says that thousands of people worked there daily, most of whom understood perfectly well that they were defrauding people all over the world, and spoke openly of it between them. "Lee Elbaz will serve 22 years in prison for the same thing that thousands of people in Israel did," an informed source told "Globes."
Yukom operated two websites. Its fatal mistake was offering its services to US citizens, which aroused the US authorities' anger. In addition to the company's websites, hundreds of binary options trading websites operated from Israel.
Most of the companies that founded binary options websites utilized the same method described in the indictment against Elbaz. The representatives of the customers in contact with the investors not earned commissions only from the difference between the customers' deposits and withdrawals, in other words from their customers' losses, and therefore urged them to deposit more and more money. The representatives used English pseudonyms and concealed their connection to Israel in order to reduce any suspicion of illicit actions. In many cases, and certainly in the case of Yukom, the customers were elderly pensioners who were persuaded to put all of their savings into a better "investment," culminating in the loss of all of their money.
For example, the indictment of Elbaz mentions an elderly couple from Kansas City who invested $110,000, all of their savings, through one of Yukom's websites. They believed that they were talking to brokers from London. They lost all of their money, among other things because of the prevailing practices of most of the companies that traded in binary options. The customers were told that if they did not withdraw the profits that they had made and left the money as an "investment," they would receive tens of thousands of dollars as a bonus. The problem that arose was that the company made the bonus contingent on making a number of investment rounds, which put the investors into a trap that deprived them of all of their money, similar to what happens in gambling casinos.
A change in image
Only after four years of activity in the binary options industry, when it had already expanded and became prosperous, did the Israel Securities Authority wake up and take action to pass a law making binary options activity illegal. A source familiar with the industry says, "The law was a step in the right direction, but the swindlers were always one step ahead. They had many good years of printing money, and used the money they made to enter other spheres."
The law promoted by the Securities Authority, which has been copied by other countries, makes it illegal to offer binary options to customers in both Israel and abroad. The explanation accompanying the law and announcements by the Securities Authority when the law was passed reported that a number of countries had transferred complaints about binary options trading, and that these trading platforms were damaging Israel's image all over the world.
Not all of the companies dealing in binary options have closed down, however. Yukom, for example, is still operating in order to enable customers who invested their money "to get it back," according to people close to the company. A number of other companies have changed their image and name, and are now working in "gray" platforms in forex, in which one of the most popular platforms is for trading in cryptocurrencies, especially bitcoin.
There have been no investigations in Israel against companies that worked in binary options. The attempt to file a class action against such companies came to nothing, mainly because each of the victims suffered a different financial loss.
Hundreds of websites
Adv. Nimrod Assif represents victims of binary options and forex concerns, including three victims who do not live in Israel who were swindled by binary investment companies. He says, "The phenomenon goes far beyond Elbaz and Yukom. For several years, dozens of companies were freely active in binary options in Israel. Hundreds, if not thousands, of Israelis did the same thing for which Elbaz was convicted. They seduced investors from all over the world. Their fate was different from that of Elbaz only because they were careful not to contact investors in the US, or because they weren't caught."
Assif adds, "The fraud would not have reached such great proportions had not the Israel enforcement authorities almost completely ignored it. There was no lack of legislation in Israel; all that had to be done was enforce the existing laws. More Israelis are likely to find themselves paying a heavy price for behavior they regard as legitimate. Had the enforcement authorities in Israel done their jobs, we wouldn't have reached this sad state of affairs."
Dr. Zvi Gabbay and Adv. Hadar Israeli from the Barnea Jaffa Lande & Co. law firm, who advised Elbaz in cooperation with a US defense team in the case against her, also warn that other Israelis are liable to pay a price for dealing in binary options. "We assume that given the encouragement received by Federal prosecutors from the Elbaz verdict, there will be additional developments in both the US and Israel, and preparations should be made accordingly," they say.
A likely target: Yosef Herzog
The investigative team responsible for the Yukom affair is currently investigating two other companies. Developments are also expected in the Yucom case, in which an indictment has been filed against company owner Yosef Herzog. Informed sources say that Herzog is the big fish that the US authorities are looking for, because while Elbaz was a senior employee, she was acting on behalf of Herzog and on his instructions. Elbaz wanted Herzog to testify, but the court dismissed her request to allow him to testify on her behalf in exchange for immunity.
Herzog was previously questioned in Israel. On a Friday in September 2017, at 7:00 AM, FBI investigators, accompanied by Israel Police investigators, appeared at Herzog's home. They detained him for questioning, and asked him specific questions that were raised by the extensive investigation conducted in the affair. The investigation also included interception of all of the two million email messages that passed between Yukom employees over the years. Only after Elbaz's indictment, however, was an indictment filed against Elbaz and other Yukom employees.
The US authorities are in contact with the Israeli Ministry of Justice concerning Herzog's extradition, although no official extradition requested has been filed yet. Sources familiar with the affair now believe that the US Department of Justice will speed up its handling of Herzog's case, who also holds a foreign passport, according to information possessed by "Globes."
Herzog himself appeared in person before the Knesset Constitution, Law, and Justice Committee in its hearing on the law that did away with binary options trading in Israel. Herzog made strong and belligerent statements against the bill to the Committee, saying, "I market forex and binary options all over the world, and in Israel. I'm proud of this. I'm not a criminal, I'm not a swindler, I'm not a criminal organization. Israel isn't hated in the world because of me. You can't say that I'm a thief. A nice reporter here said that she was afraid that there were many criminals in the sector that would kill her. I'm also scared. I'm scare of the policeman, I'm scared of income tax, I'm scared that the Israel Money Laundering and Terror Financing Prohibition Authority will come after me. They'll all come after me. My wife tells me, 'Don't go, are you crazy? You're fighting against the police and the Securities Authority. They'll arrest you, because they want to catch someone, and they will.'"
Herzog also told the Committee that he had provided a peek at the dimensions of the prosperous industry. " I have employed 513 people since 2015. No one will say that they are swindlers. If I find a swindler in the company, he'll be fired immediately. How long do I have to hear this incitement?"
The US authorities, it seems, believe otherwise. Adv. Gilad Barone and Adv. Haim Levy from the Barone & Co. law firm stated on behalf of Herzog, "He regrets the result in Elbaz's case, and hopes that matters will change later in the proceedings. Herzog cooperated with the authorities, and will continue to do so, in order to show that everything pertaining to him and the company's practices was irreproachable, despite what the indictment says."
Elbaz's lawyers: Excessive and disproportionate sentence
Gabbay and Israeli said, "The sentence given to Elbaz is excessive and disproportionate, even in comparison with what she is accused of. The conviction, and certainly the sentence, highlight the differences between the legal systems in Israel and the US. Esther Alon, who caused the collapse of a bank in Israel, got 17 years, and Israel Peri, who stole from Holocaust survivors, got 10 years from the Israel Supreme Court. These cases are much worse than that Elbaz is charged with.
"Elbaz was convicted by the US jury, which regarded her as a foreigner, and still found it difficult to convict her; they needed nearly a week of discussion, because the evidence brought by the prosecution was unconvincing. The prosecution was based mainly on state witnesses, whose sentences are determined only after they testify, according to the prosecution's satisfaction with their testimony, in contrast to the practice in Israel. It is impossible not to doubt their credibility."
Published by Globes, Israel business news - en.globes.co.il - on December 23, 2019
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