DOJ Charges Israeli With Binary Options Fraud

US Department of JusticeThe US Department of Justice (USDOJ) charged an Israeli executive with fraud in a binary options scheme.

The USDOJ made the announcement against Lee Elbaz, the former Chief Executive Officer (CEO) of Yukom Communications.

The former CEO of the Israel-based company Yukom Communications, a purported sales and marketing company, was charged in an indictment filed on March 22, for her alleged participation in a scheme to defraud investors in the United States and across the world in financial instruments known as ‘binary options.’

“Lee Elbaz, 36, of Israel, was charged in the District of Maryland with one count of conspiracy to commit wire fraud and three counts of wire fraud.”

According to the indictment, Elbaz ran two websites purporting to provide trading advice in binary options.

“The indictment alleges that Yukom provided investor ‘retention’ services for two websites, known as BinaryBook and BigOption, that were used to promote and market purported binary options, and that those binary options were fraudulently sold and marketed.  The indictment further alleges that in her role as CEO of Yukom, Elbaz, along with her co-conspirators and subordinates, misled investors using BinaryBook and BigOption by falsely claiming to represent the interests of investors but that, in fact, the owners of BinaryBook and BigOption profited when investors lost money; by misrepresenting the suitability of and expected return on investments through BinaryBook and BigOption; by providing investors with false names and qualifications and falsely claiming to be working from London; and by misrepresenting whether and how investors could withdraw funds from their accounts.  Representatives of BinaryBook and BigOption, working under Elbaz’s supervision, misrepresented the terms of so-called ‘bonuses,’ ‘risk free trades’ and ‘insured trades,’ and deceptively used these supposed benefits in a manner that in fact harmed investors, according to the indictment.”

A binary option is “a type of option contract in which the payout is dependent on the outcome of a discreet event, typically related to whether the price of an asset- such as a stock or commodity- would rise above or fall below a specified amount.” The indictment against Elbaz noted.

Binary options have become among the most controversial securities in the trading world; the all or nothing nature of the option has made it akin to gambling, according to its most hardened critics.

Following a series of investigation, the Knesset, Israel’s parliament, banned all binary options in that country.

The investigations found that binary options sales featured high pressure sales and misleading guarantees of profits in Israel before they were banned.

In the US, binary options can only be traded legally on two exchanges which trade binary options exclusively: NADEX and the Cantor Exchange.

The CBOE also offers binary options among a basket of other options.

Most scams involving binary options in the US involve over the counter trading, like in this scheme.

In over the counter binary options, the broker, in this case Binarybook and Bigoptions, takes the other side.

By doing so, Elbaz could only make money if those trading with her lost, a point that the USDOJ noted.

“While some binary options were listed on registered exchanges or traded on a designated contract market that were subject to oversight by US regulators like the Securities and Exchange Commission and the Commodities Futures Trading Commission, neither BinaryBook nor BigOption sold binary options that were traded on a legal and regulated designated contract market in the US.”

Elbaz is charged with one count of wire fraud.