The Israeli financial agency responsible for protecting investors has vowed to urgently tackle massive worldwide fraud by Israel-based binary options companies, acknowledging that the global scam is causing devastating damage to Israel’s international reputation.
Shmuel Hauser, chairman of the Israel Securities Authority (ISA), said in an interview that he is recruiting all arms of law enforcement, will push for new legislation as needed, and has full political support to grapple with the flourishing fraudulent industry, which, The Times of Israel has reported, employs thousands of Israelis working for more than 100 companies that defraud victims all over the world of billions of dollars.
“I see this on a personal level,” he said, “not just as a regulator, but as an Israeli citizen and as someone who is disgusted by fraud and especially by the type of people who take money from the unfortunate, from orphans and widows.”
The wide-scale fraud has been snowballing over the past decade, and the ISA has proved slow to react. Earlier this year, it finally banned all binary options firms from targeting Israelis, but it has said it lacks the tools and the authority to prevent Israel-based firms from fleecing victims overseas. In an interview with The Times of Israel, however, Hauser stressed that while his ISA cannot “regulate the entire world,” the scale and nature of the Israel-based fraud requires an urgent and specific solution, including changes to the law if necessary.
“Any way you look at it, as a human being, as a citizen, as a regulator, as a Zionist, as a father, and as a grandfather,” Hauser said, “it looks awful to me.”
Within months, he therefore promised, the authorities would “step up a notch… and take a big step” to tackle the fraudsters. He said the various Israeli enforcement bodies, including regulators and the police, have a high-level consultative forum, and that they would get together in that forum to “formulate the policy, and quickly, for how to deal with this problem, because it is a problem of national significance.” The forum, he said, would “decide on operative steps within the current law, and also on additional steps to expand our jurisdiction.”
The Times of Israel has in recent months been detailing massive fraud by Israeli binary options firms, beginning in March with an article entitled “The Wolves of Tel Aviv.” The fraudulent firms purport to be guiding their customers in making lucrative short-term investments, but are in fact using various ruses, including misrepresentation, allegedly manipulating rigged trading platforms and outright refusal to return deposits, to steal their clients’ money. All local binary options firms are now banned by the ISA from targeting Israelis, but they remain free to target people abroad. The US has banned overseas binary options firms from targeting its citizens, and numerous countries, including the US, Canada and France, are investigating Israel-based binary options fraud on behalf of their citizens who have been cheated.
Hauser cited the movie “The Wolf of Wall Street,” which depicts financial corruption and fraud, in relation to the industry. “We understand how the binary options companies work in great detail,” he said. “Every time people speak to me about this, you know what I think of? Of ‘The Wolf of Wall Street.'” Told that The Times of Israel has reported how some Israel-based firms use that movie to educate their salespeople, Hauser said: “That’s what we’re up against, really.”
He explained that he was able to ban binary options firms from targeting Israelis using existing legislation against gambling. But he acknowledged that the fraudulent companies are involved in activities far more cynical than gambling, by misrepresenting themselves as legitimate financial enterprises, lying about their whereabouts, rigging their trading platforms and therefore engaging in theft. When it was put to him that the victims are told that they are investing when really they are being lured into what amounts to a rigged casino, he agreed, “Indeed.”
As things stand, he said, “If these companies solicit customers abroad, I don’t have the jurisdiction [to outlaw them]. But if another [overseas] regulator asks us for help, we can investigate.”
Given the scale of the fraud, however, Israel needs to do more, he said. The phenomenon of Israel-based binary options companies targeting customers abroad “is something that troubles us greatly. It is an issue at the national level. It has grown to the point where we are now initiating a discussion of how to solve this on a national level. Because we are in a situation where [the binary options firms] are offering this to people abroad, and Israel’s reputation is being harmed in an extreme way. It’s being harmed. We know this. The ISA has a good reputation among regulators abroad, but binary options is giving us a bad name,” he said.
Raising the possibility of extending “our current territorial jurisdiction,” he said: “It is clear to us that we have to expand our [capacity to deal with this]. We are using all the authority we have [but it’s not sufficient].”
A political issue?
Asked whether there has been any political pressure to prevent action against the binary options industry, given former Knesset member Einat Wilf’s thwarted effort to close down the industry five years ago, Hauser insisted: “Absolutely not.” He added, however: “The only thing that happens sometimes is that some [lobbyists] can come and present a very innocent picture to some Knesset member and the MK will come and say, ‘Hey, what are you trying to do?’”
“The moment we decide how to tackle this, we will get support,” Hauser said. “Everyone understands [the imperative]. At present, to some extent, we [at the ISA] are alone at the front. Our powers are limited. We’re not the police, we don’t have the same powers as they do. What we do have is the expertise.”
Two weeks ago, MK Michael Oren, now a deputy minister responsible for public diplomacy, recommended an inquiry into Israel’s binary options industry, calling revelations of a massive global scam defrauding hundreds of thousands of international customers “very, very disturbing” and warning of its potential to damage Israel’s international standing.
Hauser said that in an average year, the Israel Securities Authority receives four or five requests from foreign securities authorities with which it has international cooperation agreements (under the provisions of IOSCO, the International Organization of Securities Commissions), asking it to conduct a judicial inquiry into a particular case of fraud. In the past year, by contrast, he said, the ISA received 16 such requests, most of them from European governments, and most of them related to binary options.
“Do you know why European [regulators] come to us for help, mostly from Belgium and France? They see Israeli names (when they try to track down those responsible for the alleged fraud). That is how they figure out it comes from Israel.”
Asked how individual victims, in Israel and overseas, of binary options fraud can recover their money, Hauser said that while the Israel Police has the authority to initiate investigations, it is more likely to act if victims file formal complaints. He also said victims abroad can approach their local regulators. For instance, a victim of fraud in Britain can complain to the Financial Conduct Authority and the FCA can then approach the Israel Securities Authority. “If a foreign regulator approaches us, we will address the case,” he promised.
Hauser additionally recommended that foreign victims seek to get their money back through the courts. They can seek legal advice as to how to best go about that. “We don’t handle that,” he said, but promised that “any information we get, we can give to the police. It’s within our authority to do that.”
Hauser claimed that the ISA has already “taken a very aggressive stance, more than we are used to,” in clamping down on the industry, but acknowledged that this was insufficient. “And therefore my message is that we, as a law-abiding state, need to protect those investors and to also recognize the bad reputation these websites and their employees — even if they’re not soliciting Israelis, but soliciting people abroad — are spreading. I say this out of deep worry, deep worry. I can’t elaborate, but today we are working in a much expanded level.”
Pressed for specifics, Hauser said: “I don’t want to go into detail. But I can assure you we are going to deal with this. We are not pushing this off. I don’t think we have the time for delay. We need to do it now.”