The chairman of the Israel Securities Authority, Shmuel Hauser, has asked the attorney general to grant him the authority to shut down Israel’s binary options industry.
The plea and other comments denouncing the fraudulent firms constituted the regulatory chief’s most forceful and specific pronouncement to date on the need to shut down companies in Israel that sell fraudulent binary options to customers abroad by phone and the Internet, in a scam that has been going on for years in which victims worldwide are being fleeced of immense sums of money.
“Because the ISA’s authority is currently restricted to regulation and enforcement of bodies that offer binary options to Israelis (as opposed to people overseas — S.W.), Hauser has approached Israel’s attorney general (Avichai Mandelblit) asking him to broaden the ISA’s authority and change the law so that it can also prohibit the marketing of binary options from Israel to customers abroad,” the ISA said in its statement, which was first reported on October 19 by Channel 10 TV’s Layla Calcali (Economic Night) program.
Hauser, the ISA said, considers Israel’s fraudulent binary options industry to be “an ugly phenomenon that harms innocent people and unfortunately fans the flames of negative perceptions of Israelis and Jews.”
Quoting from the Biblical book of Isaiah, Hauser rebuked Israeli binary options purveyors as “the destroyers and layers of waste that go forth from among you (Isaiah 49:17).” The verse, addressed to the Biblical people of Israel, is often interpreted in modern Hebrew parlance to refer to enemies within who bring ruin upon the society that raised them.
In some of the strongest language he has used to date, Hauser added that “we must take all possible measures to eradicate this [binary options] phenomenon.”
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.” While not all companies that offer binary options are fraudulent, many that purport to be guiding their customers in making lucrative short-term investments are in fact using various ruses, including misrepresentation, allegedly manipulating rigged trading platforms, and outright refusal to return deposits, to steal their clients’ money. Thousands of Israelis work in the binary options industry, much of which is fraudulent, with an annual turnover estimated in the hundreds of millions of dollars, if not billions.
All Israeli binary options firms are now banned by the Israel Securities Authority from targeting Israelis, but the firms remain free to seek clients abroad. The Israel Securities Authority has rejected the license requests of many forex companies as well. 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. In August, Belgium became the first European country to ban the industry.
Hauser told The Times of Israel in August that “as a regulator, as a Zionist, as a father,” the fraudulent industry “looks awful to me.” He called the Israel-based companies “disgusting” and a problem of national significance, and vowed to gather all branches of law enforcement to tackle it.
Several weeks ago, Haim Toledano and Sa’ar Pilosof, two men associated with the Israeli binary options firm Toyga, which peddles the UFX and Ubinary brands, were arrested on suspicion of tax evasion after their names appeared in the Panama Papers –a leak of 11.5 million documents that reveal financial and attorney-client information for more than 200,000 offshore entities. The documents were generated by Panamanian law firm Mossack Fonseca. A spokesperson for Israel’s Tax Authority told The Times of Israel at the time that other companies implicated in the Panama Papers are under investigation and more arrests are expected. The spokesperson would not comment on whether other binary options-related arrests were imminent. Hundreds of Israeli forex and binary options shareholders and beneficiaries are named in the Panama Papers.
In a recent interview with the Times of Israel, Itzik Shurki, the ISA’s director of the Stock Exchange and Trading Platforms Supervision Department, encouraged people who believe they have been defrauded by binary options companies with a presence in Israel to come forward.
“It’s important to come forward. We are happy to help and we want to help encourage victims to come forward,” he said. “They should go to their local regulator, who will approach us.”
ISA licenses five forex and CFD companies
While the Israel Securities Authority banned all binary options companies from targeting Israeli customers last March, it recently granted licenses to five of more than 20 firms in somewhat similar fields — forex and CFD online trading companies — who applied for authorization to solicit Israelis. Other countries, like Belgium, have outlawed highly leveraged forex and CFD firms in addition to binary options firms, claiming that forex and CFDs can also pose a danger to customers.
Companies whose applications for a license were rejected by the ISA or who withdrew their applications include FCIG Capital, Trade Marker, AGM Markets Ltd., Easy Trade, imarkets, Etrader, Prime Broker, iforex Israel, USG Capital, itrader, Smart Capital, General Trade and Etoro.
The Times of Israel has learned that the Israel Securities Authority rejected the applications of several of these companies after listening in on their conversations with customers. Some of the owners of companies that did not succeed in obtaining an Israeli license still operate brands that target customers abroad.
The five companies that were granted Israeli licenses were Atrade, FXCM Israel, First Index, Real Forex and Plus500.
Asked whether he thinks the so-called bucket shop business model that characterizes most Israeli forex and CFD firms, in which the “investor” is in effect betting against the company, is good for investors, Shurki replied: “That is the nature of the industry. You have a dealer who takes the other side of a trade. Our regulation was designed with the understanding that this is the industry and there is a severe conflict of interest here. The purpose of the regulation is to reduce the conflict of interest, but you can’t eliminate it.”
Asked whether the ISA would go further and outlaw highly leveraged forex and CFDs as Belgium has done, Shurki replied, “there were Israeli legislators who wanted to outlaw forex entirely but the Knesset decided to allow it. This is an industry that operates everywhere, not just from Israel. But the Israel Securities Authority did ask to severely restrict leverage. If today, the permissible leverage for currencies is 1:100 while for other products it’s 1:40 or 1:20, divide those numbers by four and that’s what we originally proposed. But the Knesset Finance Committee decided to allow higher leverage.”
As for the forex and CFD companies that did receive Israeli licenses, Shurki said the ISA asked foreign regulators about them and none of them was reported to have committed gross violations abroad. Should that change, the company’s Israeli license can be rescinded, he said.
Asked about the fact that Plus500 has used as its payment processor a company named Counting House, which was recently blacklisted by the US Treasury Department as a “transnational criminal organization” engaged in money laundering, Shurki said, “Plus500 Israel is an Israeli company. All their credit card processing and money transfers are done locally. The companies we regulate here do not work with foreign investors.”
However, should the parent company of a local company get into trouble abroad, their Israeli license would be subject to review, he said.
Counting House is now on the US Treasury Department’s Office of Foreign Assets Control (OFAC’s) Specially Designated Nationals (SDN) list. Any American or anyone subject to the jurisdiction of the United States is required to block an SDN’s property or interests in property. This can include bank accounts or funds of SDNs and/or any assets or property belonging to an SDN or in which an SDN has an interest that is located in the United States or is held by a US person.
It is unclear whether Plus500 has assets in accounts held by Counting House that have been frozen.
Shurki added that those companies given licenses to operate in Israel will now come under greater scrutiny.
“It’s not like a driver’s license, where you get it and you are free to go. You are now under continuous supervision of the ISA. Every month the companies have to submit 5-6 reports, as well as quarterly and annually. We plan to supervise them closely.”
While licensing the five forex and CFD companies, the ISA has not licensed any Israeli binary options firms.