The CFTC’s administrative shoe drops on the heels of a criminal conviction of a former of CEO of an Israeli company at the heart of a widespread and pernicious fraud as the agency charges a number of individuals and entities with commodity law violations.
The CFTC filed a five-count complaint in the U.S. District Court for the Northern District of Illinois charging five entities and four individuals with fraud relating to a global retail binary options enterprise that targeted and victimized U.S. residents. The scheme involved approximately $103 million in fraudulent solicitations. The defendants, all Israeli citizens, include Lee Elbaz, Yakov Cohen, Yossi Herzog and Shalom Peretz, Along with Yukom Communications Ltd., an Israeli corporation, and a number of other firms owned and operated by the individual defendants were also charged (CFTC v. Yukom Communications Ltd., August 12, 2019).
Defendant Lee Elbaz was convicted by a federal jury in Maryland of wire fraud and conspiracy to commit wire fraud on August 7, 2019 based upon substantially the same underlying facts as alleged in the CFTC complaint. She currently awaits sentencing.
A complex web of companies and platforms facilitate a pernicious fraud. The CFTC’s complaint charges that from March 2014 through the present, the defendants fraudulently solicited and accepted more than $103 million in connection with their binary options trading scheme. The defendants executed their unlawful scheme through internet websites using fictitious trade names such as BigOption, BinaryBook, and Binary Online. They also utilized a number of foreign-based companies to accomplish their fraud. Some of those offshore jurisdictions included Mauritius, the Republic of the Marshall Islands, Anguilla, St. Vincent and the Grenadines, and Gibraltar.
The fraud perpetrated by the defendants in this matter was extensive and widespread. Some of the allegations contained in the CFTC complaint assert the following:
- the defendants falsely stated that the binary options offered by the five defendant entities are were actual transactions subject to objective market conditions when, in fact, they were mere book entries whose outcomes can and have been manipulated to force customer losses;
- the defendants falsely represented that the binary options being offered are profitable, when in fact approximately 95 percent of their customers lose money;
- the defendants falsely stated that the interests of the defendant entities were aligned with the interests of customers, when in fact the entities were on the opposite side of each binary option trade and therefore profited from customer losses;
- the defendants misrepresented the financial expertise, physical location, and identity of the individual "brokers" who solicit and sold binary options;
- the brokers routinely and consistently used high pressure sales techniques when soliciting customers to deposit funds with the foreign entities. The complaint quoted an email from defendant Elbaz, to certain brokers: "We are the money makers and no one can stop us! I want to hear the noise on the floor! This is not a cemetery here! It is a boiler room!... Either you sell the client or he sells you a reason he can’t deposit!... Don’t leave the money! Just Take It!";
- the defendants engaged in various activities to conceal the true nature of their binary options enterprise, including setting up various foreign nominee entities to enter into agreements and open off-shore bank accounts through which customer funds were transferred, concealed, and ultimately misappropriated;
- the defendants utilized various manipulative or deceptive devices, including so-called "bonuses" and "risk free" trades, and artificially manipulated the results of binary option trades to force customer losses and ultimately prevent customers from withdrawing funds; and
- The complaint also charges the defendants with acting as futures commission merchants without registering as such, as required by CFTC regulations.
Relief sought. In its continuing litigation against the defendants, the CFTC seeks disgorgement of ill-gotten gains, civil monetary penalties, restitution for the benefit of customers, permanent registration and trading bans, and a permanent injunction from future violations of the Commodity Exchange Act.
DOE Director comments. CFTC Director of Enforcement James McDonald stated, "Our efforts to hold wrongdoers accountable do not stop at our shores." He added, "Working with our partners here in the U.S. and internationally, this enforcement action represents the CFTC’s continued commitment to rooting out fraud from our markets in all forms, protecting U.S. customers, and holding participants at all levels accountable."
The case is No. 1:19-cv-05416.
Attorneys: Elizabeth N. Pendleton for the CFTC.
Companies: Yukom Communications Ltd.; Linkopia Mauritius Ltd.; Wirestech Ltd. d/b/a BigOption; WSB Investment Ltd. d/b/a BinaryBook; Zolarex Ltd. d/b/a BinaryOnline
MainStory: TopStory CFTCNews Derivatives Enforcement FraudManipulation InternationalNews IllinoisNews
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