An Israeli fraudster is going to do hard time for a binary options scheme.
Lee Elbaz, 38, a citizen of Israel, was sentenced by U.S. District Judge Theodore D. Chuang of the District of Maryland, earlier this week for one count of conspiracy to commit wire fraud and three counts of wire fraud.
Judge Chuang gave Elbaz twenty-two years in prison, according to a press release from the US Department of Justice.
“This defendant targeted and defrauded thousands of victims, looting monies from retirees, veterans and other individuals, many of whom lost their entire savings,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division. “Today’s sentence demonstrates that criminals who defraud U.S. investors will face serious consequences, no matter where in the world they commit their crimes.”
“Financial criminals like Elbaz and her co-conspirators are interested in one thing: taking money out of the pockets of unsuspecting investors for their own benefit. The FBI is dedicated to identifying and investigating fraud, no matter where the criminals are located, or how long it takes,” said Assistant Director in Charge Timothy R. Slater of the FBI’s Washington’s Field Office. “I’d like to thank our partners in this investigation, specifically the Israeli Police, and to encourage anyone who may have information about binary options fraud to come forward and report it to the FBI.”
The fraud amounted to more than $100 million, according to the release.
Here is more from the release.
“According to the evidence presented at trial, Elbaz and her co-conspirators fraudulently sold and marketed binary options to investors located in the United States and throughout the world through two websites, known as BinaryBook and BigOption. The evidence showed 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 when, 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, the evidence showed.”
A Binary option is, “a type of option contract in which the payout depended on the outcome of a discrete event, typically related to whether the price of a particular asset—such as a stock or a commodity—would rise above or fall below a specified amount. Unlike standard options, investors in binary options were not being given the opportunity to actually purchase a stock or a commodity but, rather, were effectively predicting whether its price would be above or below a certain amount at a certain time of the day. The option holder was typically promised that when the binary option expired, the option holder would receive either a pre-determined amount of cash or nothing,” according to the indictment against Elbaz.
All binary options were banned from Elbaz’s native Israel in 2017.
The ban followed an investigation into the industry by the Times of Israel, which noted after the Knesset, Israel’s parliament, banned binary options, “The law to ban the industry took shape after Israel Securities Authority Chairman Shmuel Hauser, alerted to the scale of the fraud by The Times of Israel, promised in August 2016 that he would take the necessary steps to thwart the fraudsters. That same month, Jewish Agency chief Natan Sharansky urged the government to close down the ‘repugnant, immoral’ industry. The Prime Minister’s Office last fall called for it to be banned worldwide.”
In the US, binary options can only legally be traded on exchanges which must be registered.
NADEX and Cantor Exchange are two legally registered binary options exchanges registered in the US.
In the case of Elbaz’s scheme, the binary options were traded over the counter, meaning her companies were on the other side of all trades.
As such, Elbaz could only make money if investors lost money.
Despite that, scripts said such things as, “as your account manager my goal for you is to be as profitable as possible since my pay check is based on your profits,” a statement the USDOJ said was false and fraudulent in its indictment.
In 2017, the Federal Bureau of Investigation put out a binary options fraud warning stating in part, “Binary options fraud is a growing problem and one that the FBI currently has in its crosshairs. In 2011, our Internet Crime Complaint Center (IC3) received four complaints—with reported losses of just more than $20,000—from binary options fraud victims. Fast forward five years, and the IC3 received hundreds of complaints with millions of dollars in reported losses during 2016. And those numbers only reflect victims who reported being fleeced to the IC3—the true extent of the fraud, which has victims around the world, isn’t fully known. Some European countries have reported that binary options fraud complaints now constitute 25 percent of all the fraud complaints received.”