The FBI this week placed a large warning to the public against binary options fraud at the very top of its main website, above even its “most wanted” and “missing persons” alerts, underlining that the widely fraudulent, multi-billion dollar industry, centered in Israel, has become a top priority of US federal law enforcement.
Since March 13, visitors to the website of the Federal Bureau of Investigation — the principal investigative arm of the US Department of Justice — see the words “Binary Options Fraud” displayed prominently at the top of the page, linking to a detailed article describing the vast scam.
Telling the public to be wary of the very term “binary options,” the agency, in its accompanying warning, cautions that many websites offering this product are “being used by criminals outside the US as vehicles to commit fraud.”
“Binary options fraud is a growing problem and one that the FBI currently has in its crosshairs,” the agency reports, echoing February 15 interviews FBI staffers gave to The Times of Israel in which they said that the bureau had made tackling binary options fraud worldwide a priority.
“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,” the warning on the website states. “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.”
‘Some European countries have reported that binary options fraud complaints now constitute 25 percent of all the fraud complaints received’ — FBI warning
As The Times of Israel has documented in an ongoing series of articles for the past year, a large proportion of binary options fraud emanates from call centers in Israel. The industry, which employs thousands of Israelis, has been operating for 10 years in Israel with little to no intervention on the part of Israeli law enforcement, and is estimated to generate $5 billion to $10 billion a year. Fraudulent firms, whose staff routinely use false identities, and lie about their locations and expertise, use a variety of ruses to trick clients all over the world, who believe they are making potentially lucrative short-term investments, into parting with their funds; almost all customers lose all or almost all of their money.
The warning dominating the FBI’s website appears at a critical time in Israel, as the Ministerial Committee for Legislation, whose discussions are not open to the public, is set to vote on a government bill — drafted by the Israel Securities Authority, the Justice Ministry and the Attorney General’s Office — that would shutter the entire industry here, barring it from operating from anywhere in Israel and from targeting people anywhere in the world.
Sources have told The Times of Israel that lobbyists and proponents of the industry are working behind the scenes to try to undermine support among ministers for the new legislation. (Two advocates for the industry appeared at a session on binary options fraud at the Knesset State Control Committee last month, where their pleas to spare the widely fraudulent industry were rejected by MKs and law enforcement officials.)
Ignoring the growing awareness that the industry is widely fraudulent, lobbyists argue that a ban would put large numbers of Israelis out of work. They are also pleading that the binary options firms be regulated rather than closed down, despite the fact that it is the regulator himself, Shmuel Hauser, chair of the ISA — appalled by the fraud, its devastating impact on Israel’s financial reputation, and its inflaming of anti-Semitism — who is the very official who oversaw the drafting of the legislation that seeks to shutter the entire industry. (“I have yet to come across a single legitimate binary options boiler room,” Jason Roy, the chairman of Canada’s newly formed Binary Options Task Force, noted last week, issuing a plea to the Israeli government to shut down binary options “immediately.”)
An Israel Police officer at the February 28 Knesset committee session vowed of binary options fraudsters: “We will tackle this from the criminal angle, we will go after the credit card processing, and if we don’t catch them from the criminal angle we will catch them from the regulatory angle. And if we don’t catch them that way, we will find their sources of money. And if we don’t catch the sources of money, we will go to the tax authority and get them for not reporting income,” Superintendent Gabi Biton promised. “We will attack this from every direction.”
Theft, identity theft and manipulation of algorithms
In the FBI’s March 13 article, the bureau explains that “binary options” in itself is a neutral term that describes a financial product that can be legitimate if offered on exchanges and properly regulated. But, it then warns starkly, many of the websites that offer binary options are operated by “criminals located overseas [who] are only interested in one thing — taking your money.”
The FBI says that complaints it receives about binary options companies generally fall into three categories: refusal to credit customer accounts or reimburse funds to customers, identity theft, and manipulation of trading software.
The refusal to credit customer accounts, it warns, involves not allowing customers to withdraw their money, ignoring customer phone calls and e-mails, as well as sometimes freezing accounts and accusing the customers themselves of fraud.
Identity theft occurs when the companies’ compliance departments ask for documents like photocopies of a credit card, passport, driver’s license and utility bills, ostensibly to comply with anti-money laundering regulations. “This information could potentially be used to steal your identity,” the bureau warns. (Furthermore, The Times of Israel has established, these documents can be used by fraudulent firms to dispute chargebacks with banks.)
Finally, says the FBI, some binary options trading platforms reconfigure their algorithms to generate losing trades.
The FBI is actively investigating several binary options companies. In January, it convened the 2017 Binary Options Fraud Summit, held at Europol headquarters in The Hague, which brought together more than 20 law enforcement agencies and regulators from throughout Europe and North America to discuss the growing criminal threat.
Although a large percentage of this criminal activity is carried out from call centers in Israel, the industry’s shell companies and payment processing infrastructure are spread throughout the world, as are the victims.
The FBI told The Times of Israel in February that international borders would not deter it in pursuing the perpetrators of the crimes.
“We are not limited to the USA,” FBI Supervisory Special Agent Milan Kosanovich said. “We have international partnerships with countries all over the world. I can’t get into specifics but we have worked long and hard as an entity to make sure we developed those relationships and get the information that our investigators need from our partners.”
The FBI has invited anyone who feels they have been a victim of binary options fraud, no matter where they live in the world, to come forward.
A spokeswoman said anyone with a complaint or tip about binary options fraud can contact their local FBI field office or the agency’s internet crime complaint center, www.IC3.gov. Anyone with information should also notify the SEC (Securities and Exchange Commission) and CFTC (Commodity Futures Trading Commission), the spokeswoman said, so that the complaints can be examined for possible civil regulatory issues as well.