An Israeli woman was arrested two weeks ago in New York as she stepped off her flight at John F. Kennedy Airport, in what may be the first concrete action in a developing crackdown by the U.S. of binary trading.
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Lee Elbaz, CEO of a binary trading firm called Yukom, was in the U.S. on private business when she was detained by FBI agents on September 14. She was apparently unaware that a criminal complaint alleging wire fraud and conspiracy to facilitate wire fraud had been filed with a Maryland court.
Elbaz was detained by Customs and Border Patrol agents and then turned over the FBI. She is now under house arrest. Yukom declined to comment.
Binary options, which involve placing a bet on whether the value of a financial asset will rise or fall in a fixed timeframe, had been a big business in Israel until the government began a crackdown.
But the U.S., too, has targeted the industry: Last November, the Securities and Exchange Commission warned investors to steer clear of binary options, and several months ago the FBI signaled it was targeting the industry and opening investigations in response to complaints.
“Everyone involved on a management level in the gambling and binary options industry and worked with American clients is at risk of arrest in the U.S.,” said Joey Shabot of the Tel Aviv office of Greenberg Traurig, and who specializes in white collar criminal cases.
He said the risk would remain for years if they visited the United States or a country that has an extradition treaty with it.
The indictment, which TheMarker saw, shows the FBI conducted a wide-ranging probe. Among other things, it found that Yukom operated through two Israeli brokerages called BigOption and BinaryBook. Eighteen complaints were filed against BigOption by clients who lost money and another 33 against BinaryBook. This would indicate that other employees and shareholders are at risk of arrest.
If Elbaz is convicted of all the charges against her, she faces 20 years or more in federal prison. However, Shabot said that unless prosecutors want to win a conviction to deter future offenders, they are likely to make a plea bargain.
The FBI believes Elbaz was not just the CEO of Yukom but a shareholder, although Yukom told a Tel Aviv court in July that that a man named Yossi Herzog was the company's founder and owner. The FBI asserts that it has emails signed by Elbaz or by Lena Green, another named she used, to employees of BigOption and BinaryBook, presenting herself as CEO.
Some of the evidence gathered against Elbaz ahead of her arrest was secret testimony by two employees of BinaryBook’s customer retention department. They alleged that management awarded employees bonuses and other incentives if they were able to convince clients to deposit more money with the firm, which would then saddle the clients with more losses on binary trades.
Although BinaryBook and BigOption employees worked out of offices in Caesarea, management instructed employees to tell clients they were operating outside of Israel. They further alleged that employees were told to uses aliases with clients and Elbaz herself approved the names they chose.
The indictment cites another Israeli firm, Spot Option, in addition to Binary Book. Spot Option’s website presents the company as providing a platform for trading, but the FBI said emails showed the two firms conspired to defraud customers into losing more money.
According to data collected by the FBI, between the second quarter of 2014 and the fourth quarter of 2016, BinaryBook received $98.9 million worth of deposits from clients and paid back just $19.9 million, thus giving a glimpse at the extent of client losses.