Vise tightens around Israeli online scammers; Israeli banks close Forex companies’ accounts, and Twitter follows Google and Facebook in banning Cryptocurrency ads
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Reclaws International: European Union bans binary options, strictly regulates CFDs
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The European Securities and Markets Authority announced that it is banning binary options and placing restrictions on the sale of contract for differences (CFDs) to retail investors.
Binary options and contracts for differences are financial products that are frequently abused by cybercriminals to perpetrate online investment scams.
Beginning in the middle of the last decade, a multi-billion dollar online trading industry developed in Israel that offered binary options, forex and CFDs to ordinary, unsophisticated investors in Israel and abroad. Much of the industry perpetuated fraud against its investors, earning money when the investors lost money. The fraudsters lied to the investors about the potential for profit and about the identities and locations of its “brokers,” and frequently disappeared with the money when investors attempted to withdraw profits.
ESMA, the European Union’s financial regulator, said Tuesday it will publish the new rules in the Official Journal of the European Union in the coming weeks. The binary options ban will go into effect a month from the date of publication, and the new rules applying to CFDs will go into effect two months from their publication.Many binary options, forex and CFD companies have operated from Israel with no regulation whatsoever, while others found a friendly regulator in the Cyprus Securities and Exchange Commission (Cysec), which allowed them to legally offer their products throughout the European Union. Binary options were largely an Israel-centered industry while forex and CFDs are peddled by Israelis, Cypriots, Russians and others.
One industry expert described ESMA’s decision, however, as akin to “closing the barn door after the horse has escaped.” Andrew Saks-McLeod, the editor of the FinanceFeeds trade publication, has long been critical of the binary options industry and has sought to draw a distinction between those online trading websites he views as legitimate and those that are frauds.
Saks-McLeod told The Times of Israel that since Israel passed a law banning binary options in October 2017 — as a direct consequence of Times of Israel investigative reporting on the fraud — most Israeli binary options operatives have been selling cryptocurrencies instead. The ESMA’s ban on binary options, he warned, will do little to stop the phenomenon of investment scam boiler rooms operating from Israel and other jurisdictions with lax law enforcement.
“I’ve noticed most of the Israelis in Cyprus who used to sell binary options are now offering ICOs [initial coin offerings]. They don’t even need a license from Cysec to offer these products and the investor who loses all his money has no legal recourse,” he said.
ESMA’s binary options ban will consist of a “prohibition on the marketing, distribution or sale of binary options to retail investors,” according to a March 27 ESMA press release.
The contracts for differences regulation will restrict the amount of leverage that can be offered to retail investors, will not allow investors to lose more than they invested, and will prevent the use of “bonuses” and other incentives to trade. The new rules will initially apply for three months and will be extended as ESMA deems necessary.
Twitter follows Facebook and Google
ESMA’s announcement came a day after Twitter announced a ban on ads for cryptocurrencies and ICOs. The company had said it would no longer advertise binary options in August 2017.
Less than two weeks ago, the internet giant Google announced that beginning in June, it will restrict the advertising of contracts for difference, rolling spot forex and financial spread betting, as well as enforce an outright ban on advertising for binary options and cryptocurrencies.
Google’s move is perceived as the greatest blow yet to fraudulent cryptocurrency, binary options, forex and CFD websites.
Facebook banned ads for binary options, cryptocurrencies and ICOs in January.
In its press release, ESMA explained that it considered CFDs and binary options potentially dangerous to investors. CFDs pose a risk because of “excessive leverage” while binary options have a “structural expected negative return and embedded conflict of interest between providers and their clients.”
Legal action against Israeli binary options firms
Despite the fact that Israeli law enforcement has yet to indict a single binary options fraudster, operatives are facing legal troubles from other directions. Several alleged operatives are facing lawsuits from investors abroad. Meanwhile, Israeli banks have closed the accounts of Israel-based forex companies.
Four lawsuits have been brought against Banc de Binary and the Israeli company that operated the site, owned by Oren, Hezi and Lior Shabat, according to Israel’s corporate registry. The first lawsuit, for NIS 360,060 ($103,275), was filed by a 69-year-old man from Finland through his Israeli lawyers Adam Ashkenazi and Raouf Najar. The Finnish man lost a total of 88,250 euros ($110,000) to the company and as a result fell into a deep depression, suffered the demise of his marriage, moved out of his home, and has been compelled to return to work in his retirement.
In their response to the complaint, Oren Shabat and the local Israeli company Global App Technologies Ltd. asserted that the investor had signed an agreement acknowledging that he understood the risks involved in trading binary options. The defendants also claimed that the investor had signed a document giving up his claim to some of his money.
“He lost his entire pension while the defendants live in luxurious houses and drive fancy cars,” the man’s lawyers wrote in the complaint.
In addition, two alleged victims of the binary options website TitanTrade have filed lawsuits against MIG GA Financial Trading (which has since changed its name to Gtech Media Development Ltd),
a company registered in Israel at 13 Tuval Street in Ramat Gan whose director is Guy Galboiz.
The first lawsuit was filed by a Polish woman who is suing the company for $93,000 or 358,050 shekels. Her lawyers, Nir Friedman and Yossy Haezrachy, claim that MIG GA Financial Trading employed skilled salespeople who represented themselves as working for TitanTrade.
MIG GA Financial Trading countered that there is a lack of privity between the plaintiff and defendants since MIG GA Financial Trading is an Israeli company that merely provides services to foreign companies and is not the company that transacted with the plaintiff.
In a separate lawsuit, a Lithuanian man is suing Guy Galboiz and Gtech Media Development for NIS 76,720 ($22,000).
Other lawsuits making their way through Israeli courts include a $382,422 lawsuit by an Australian man against Roey Shagan and Paperclick Marketing Ltd. The man claims to have been defrauded by 365BinaryOptions.com and that Paperclick Marketing ran the website.
A Canadian man is suing another Israeli company, IGMD Ltd., owned by Yehoram and Shay Hillel, for $54,436. His lawyers are Adam Ashkenazi and Raouf Najar and the man claims he was defrauded by the binary options website OptionBit.com.
Earlier this month, a Tel Aviv District Court ruled against Haim Toledano and his company Toyga Media Ltd., which is associated with the website UFX.com. Toledano had sued Israel’s First International Bank for closing his account, unlawfully, he claimed.
The bank argued that the activity in the company’s accounts raised many red flags for possible money laundering and that the bank was within its rights to close the account. The judge agreed with the bank. Israeli banks have been stepping up their anti-money laundering due diligence in the last year in an effort to comply with new laws passed by Israel’s Knesset whose purpose is to help Israel meet international anti-money laundering standards.
Toyga and Toledano are currently fighting a similar legal battle against Israel’s Mizrahi Bank, which also took steps to shut down their bank accounts. An email sent from one of the bank’s compliance officers to other staff members, that was revealed in the lawsuit’s discovery process, hints that the closing of Toyga’s bank account may not be an isolated case, and that it may become increasingly difficult for Israeli forex, CFD and cryptocurrency companies to maintain bank accounts in the country.
On November 22, 2016, Amos Lottem, a compliance officer for Bank Mizrahi told other staff members that they cannot accept further money transfers into Haim Toledano’s bank account.
“The money comes from offshore, with no explanation of its source,” he wrote, “The companies he reported receiving money from in the past operate without a license and he himself is under investigation by the Israeli Tax Authority. Until we get all the proper documents proving the source of the money and that he paid taxes on it, we cannot accept the money.”
In his complaint, Toledano disputed the bank’s findings and claimed the source of the money was dividends from legitimate business activity.
In an email dated December 13, 2016, Lottem suggested that the bank had scrutinized the activity of other forex companies as well.
“Haim Toledano has a forex company in Cyprus and he also operates ‘marketing’ and ‘call centers’ for additional forex companies. This is similar activity to the activity of IDI Ventures at Branch 36 and to RBPKR.”
IDI Ventures is associated with the online forex brands Xforex and Xtrade while RBPKR is associated with KSFtrade.com.
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