Last updated on May 22, 2020
The Binary Options Fraud Virus
Israel was the breeding ground in which the global binary options and broker scam virus was hatched from 2009 onwards and spread worldwide by Israeli “startup entrepreneurs” until 2018 when most regulators prohibited binary options. The binary options perpetrators were a central part of the so-called Israeli start-up miracle and were celebrated as tech entrepreneurs.
Like a financial COVID-19 virus, the fraudulent binary option disease has spread and claimed hundreds of thousands of victims worldwide. Victims were mainly naive consumers and retail investors in North America, Europe, Australia, and Asia. They fell for the promises of the scammers’ websites and Boiler Room agents. Ridiculous promises were made with up to 100% returns per month with (worthless) investment guarantees. According to the FBI and other sources, retail investors lost up to $10 billion per year in the binary options disease period between 2009 and 2018.
The binary options were an evolution of already existing scam models such as email or pishing scams. In its early years, fraudsters had sold binary options as a revolutionary financial instrument and scammers pretended to act as brokers and/or traders. It was not until 2016 that the fraudulent extent of Binary Options became known. Until then, there were warnings from financial market regulators but these were largely limited to warnings against “unregulated” or “unauthorized” providers. The fraudulent aspect was initially completely underestimated. And yet, we already see successors and mutations of the binary options virus at work with CFD and crypto scams.
Yukom Scheme and Lee Elbaz
One of the larger operators (but by far not the largest) of binary options scams was the Israeli Yukom Communication Ltd. The Yukom scheme became popular because the US prosecutors had made it the role model for the prosecution of binary options. The FBI and prosecutors have explained the anatomy and functioning of the scheme in great detail. This forensic analysis in Yukom‘s case has also provided valuable insights into how the fraudulent binary options industry in general worked.
The scheme was controlled by the two Israelis Yosef “Yossi” Herzog and his younger partner Jakob “Kobi” Cohen. The Israeli Lee Elbaz was installed as CEO in or around 2014. The Yukom scheme operated illegal boiler rooms in Israel and Mauritius. The scheme operated the three big fraud brands BigOption, BinaryBook, and BinaryOnline.
In a court filing last Wednesday, the US government informed the court that Lee Elbaz should be ordered to pay $28 million in restitution. This calculation “likely represents a conservative estimate of loss and restitution.”
The timeline of the Lee Elbaz proceedings:
- Arrest: On March 22, 2018, US prosecutors charged Lee Elbaz in an indictment with one count of conspiracy to commit wire fraud and three counts of wire fraud.
- Indiction: In August 2019, Elbaz was found guilty yesterday for orchestrating a scheme to defraud investors in the United States and worldwide by fraudulently marketing approximately $145 million in financial instruments known as “binary options.”
- Trial and conviction: Lee Elbaz, 38, a citizen of Israel, was found guilty after a three-week jury trial of one count of conspiracy to commit wire fraud and three counts of wire fraud.
- Sentencing: In December 2019, Elbaz was sentenced to 22 years in prison and a restitution payment of $28 according to the US prosecutors.
- Restitution payment: In February 2020 the US prosecutors recommended to the court a compensation payment of $28 million for Elbaz.
Elbaz is appealing her conviction and sentence. She is one of 21 defendants charged in the Yukom case and was the first to be tried. Before Lee Elbaz was tried in summer 2019, five former Yukom employees already pleaded guilty and cooperated with prosecutors. Some of them testified in court against Elbaz.
Will there be further trials?
A few weeks ago Ankush Khardori, one of the responsible prosecutors in the Yukom Case, left the prosecution. It is not clear whether and what effects this will have on the further course of the proceedings. While Khardori praised the FBI for its excellent work he massively criticized the US Department of Justice (DOJ) for its lax approach to cybercrime and cybercriminals. In his opinion, the authorities must take much harder action against cybercrime. Whether this criticism is also related to the Yukom case is not known.
The currently important question is how the prosecution against Lee Elbaz‘s bosses will proceed. Will the beneficial owners of the Yukom Scheme, Yossi Herzog and Kobi Cohen, be brought to court? Currently, the two are allegedly in Israel. It is not known whether there are any corresponding extradition requests from the US prosecutors.