News Headline Alert: Israel’s vast, amoral binary options scam exposed

Chris Lee

It is a fact of life that, whenever consumers are drawn to the latest rage in any business offering, especially one that involves money in any way, that offering will also draw the criminal element of our society, as well as a healthy contingent of people that operate on the fringes in the shady regions of unethical business practices. Binary options are the latest rage in foreign exchange, and it should come as no surprise that, in one particular market, a recent newspaper exposé has uncovered business practices that should send shockwaves through the trading community and awaken our collective consciousness.

The market is Israel, and the exposé comes to us from The Times of Israel. Many of the warnings that we have been hearing lately from regulators, as well as innumerable complaints from an army of forex traders, have had to do with aggressive marketing campaigns from binary brokers attempting to solicit new customer deposits in countries where they do not have offices or licenses that permit their activities to be authorized. It now appears that the hotbed of this operation resides in Tel Aviv, where young workers will do almost anything to afford the local high cost of living, said to be only second to Tokyo. Job listings are abundant. The pay is low, but the nature of the work is what is so appalling and what this article illuminates.

The newspaper article is a ten thousand word treatise on shady business practices, how people get drawn into a web of unethical behavior, how consumers are fleeced right and left, and why law enforcement officials and regulators have turned a blind eye to this travesty of justice, or, as some have characterized it, a time bomb waiting to explode. The author walks you through each avenue of the scam and highlights the piece with quotes from participants that were willing to share their personal experiences. We can easily describe this situation as fraud at the highest level, but it borders on the edge of legality. Be advised to be cautious in any undertaking involving an offshore enterprise.

Our story begins in Australia

Dan Guralnek had been a young Jewish boy that attended Jewish Day School in Sydney, Australia, but when he was 28, he made a life career decision to immigrate to Israel. “I always wanted to move to Israel. I thought, ‘I’m free, no strings attached, I can go.’” After learning Hebrew, he settled down in Tel Aviv, working a number of low paying jobs in an attempt to pay his sky-high rent and other living costs. Like many before him, he began to search the papers for higher paying jobs. The job listings were dominated by ads for the binary options industry, supposedly paying twice what he was then making with the possibility of commissions, as well.

Dan began making calls and had no difficulty qualifying for an interview. “As soon as I started looking for a job, I was getting calls from binary options companies every day. They dominate the job advertisement space. You walk in and they make a big show like they’re assessing whether or not they want you. But they want you.” Before he could say forex, he found himself in a call center with fifty other employees. Many of them were recent immigrants like himself, well versed in a variety of foreign languages.

In his own words, “My job was to call people around the world and persuade them to “invest” in an ostensible financial product called “binary options”. I was told to tell people I had years of experience in the market, that I had studied at Oxford and worked for the Bank of Scotland. The clients would be encouraged to make a deposit — to send money to his firm — and then use that money to make trades.”

If you have been cold-called on the phone by someone like Dan, then, according to the article’s author, Simona Weinglass, the person on the other end of the line has been trained to manipulate you in every way. She wrote, “Before he started the job, the company gave Guralnek a week-long sales course in which he was taught enough financial knowledge to sound good to a customer who knew less than him. He was also instructed in high-pressure sales tactics. He had been instructed to present the binary option as an “investment” and himself as a “broker,” even though he knew they would most likely lose all their money.”

Dan adds, “The client isn’t actually buying anything. What he’s buying is a promise from our company that we will pay him. It’s gambling and we’re a bookie. They taught us how to make people uncomfortable, how to answer objections, how to keep them on the phone. They told us to leave our conscience at the door.”

If investment cold-calling is legal, then why is this situation a scam?

It is not a crime for an investment professional to call you on the phone and then try to sell you either his security offerings or management services. Laws that protect the consumer vary by country, and quite a few countries are lax in this area, the reason for the many disclaimers on forex websites and the common advice of “Buyer beware”. The problem with the situation in Israel is not with the actual calls, per se. The issue is that the “bucket shop” operations are part of a larger scheme that is deliberately designed to fleece unsuspecting consumers, typically the poor, by appealing to their greed.

These operations are currently under the regulatory radar screen in Israel. Estimates are that there are hundreds of binary bucket shops, which sell their services to legitimate firms in Cyprus and other locations. Several thousand employees work in the suburbs surrounding Tel Aviv, and “the Israeli forex and binary options industry has annual turnover in the hundreds of millions, possibly even billions, of dollars.”

Many are local subsidiaries of parent firms, but when Weinglass investigated further, she found that the parent companies typically deny any association with the Israeli entities, even if the brand name appears on the office door. The response is that the firm is an Israeli corporation, as opposed to a division of its Cyprus home office. Such games are prevalent in this industry to avoid regulatory oversight and apparent blame in the event of litigation.

Weinglass was also told that, “At some companies, the house is bent. A variety of ruses are used. The potential payout for a correct prediction is complex, opaque and calculated to minimize the company’s loss. If an asset is behaving in a predictable way — say, the price of copper starts to climb following an earthquake in Chile — the company will pull that asset from the online platform. At some binary options firms, the online platform is manipulated to provide false results that ensure the customer loses.”

Do we know how many of these enterprises are fraudulent?

There is no way currently to assess how many of these companies act unethically or deliberately perpetrate fraud, primarily because they are not regulated. Chaya Berkowitz, an eight-year veteran of forex companies in Israel, confided that, “If you have ten forex companies, probably six or seven of them have bad reputations that give the others a bad name. It’s unfortunate because the others take their business seriously and do care about their clients.”

In late 2014, Ariel Marom, a former employee of several binary option companies in Israel, actually assumed the role of a “whistleblower” and petitioned government officials to take action. After describing the industry as “economic terrorism”, he went on to say, “I am calling on the regulator in charge of banking services and the Knesset Finance Committee to immediately take action to stop the wave of plundering, theft, fraud, money laundering, and crime on an international scale that is managed and operated in Israel that is hurting thousands of customers around the world.” No one has been able to find Mr. Marom for an interview.

After new legislation went into effect in May 2015 to regulate online financial trading industries, the Israel Securities Authority (ISA) asked for license applications under the law for those businesses wishing to sell their products to Israeli citizens. Eighteen binary option companies complied, but according to Itzik Shurki, director of the ISA’S Exchange and Trading Platforms Supervision, “If we decide yes, they will become fully regulated companies; if we decide no, they will have to stop their operations.” To date none of these applications have been approved.

Shurki also added that, “With binary options we’ve already informed the companies that our intention is probably not to approve this product. Its basis is problematic. Because ultimately — I don’t want to use the word ‘gambling’ because it is a financial product — but in the way it is offered and in the short time frame, and with all its complexity, in our view it brings it closer to a guessing game than a financial product where you can evaluate its worth.” Another employee within the industry countered, “For some crazy reason it’s legal in Europe. Individual European nations are letting binary options fly. While countries like the United States smelled the bullshit a long time ago and made it illegal.”

Why aren’t law enforcement officials arresting these people?

When questioned directly, law enforcement officials throw their hands up in dismay. Until there are complaints, they cannot investigate, and no complaints have been filed. These nefarious firms know how to tiptoe around the law by only soliciting customers outside of Israel in countries like the United States, Europe, Russia, and Arab-speaking nations.

Regulatory agencies in these areas often warn of “fraudulent schemes involving binary options and their trading platforms. These schemes allegedly include refusing to credit customer accounts, denying fund reimbursement, identity theft, and manipulation of software to generate losing trades.” Shurki adds that it is not his responsibility to arrest people for theft – check with the police.

The Times of Israel contacted the Israel Police, but their response was, “This is something you’re claiming. If no one has complained about it, there is no issue. You want us to check every company in Israel and see if by chance they are committing crimes?”

Concluding Remarks

Beware the aggressive marketing agent, who solicits a deposit from you for an offshore binary options account. As for protecting yourself from choosing one of these firms in the first place, Chaya Berkowitz advises, “I would also ask friends or other investors. Personal word of mouth is huge. I would do my homework.” And, so should you, too!

Chris Lee

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