International lawyer Gabriele Giambrone last week sent a letter to Israel’s Justice Ministry informing it that his firm represents 2,500 clients allegedly defrauded by binary options and forex companies. Many of these companies operate from Israel, he wrote, and pleaded for Israel’s help in bringing them to justice.
“The Israeli regulatory and enforcement authorities have so far failed to take any action,” the London-based lawyer wrote in the April 5 letter, “despite the widespread knowledge of where these companies are based, which offices they are operating from and who are the individuals behind it. It appears that none of the regulators are interested, so investor protection falls down the chasm between the net.”
In fact, as The Times of Israel reported last month, for almost a decade Israel has played host to the activity of an online trading industry, a great deal of it fraudulent, that has fleeced hundreds of millions of dollars, possibly billions, from hundreds of thousands of customers globally, while Israeli authorities have opted to look the other way.
At the time of this article’s publication, the Justice Ministry had not responded to the allegations in the lawyer’s letter.
In a telephone interview, Giambrone, managing partner at Giambrone Law, said that at least 120 binary options and forex companies, 20 of which have direct links to Israel and many more of which are suspected of such links, will be named as defendants in an upcoming lawsuit on behalf of the 2,500 alleged victims before the High Court of Justice in London. The lawsuit is being handled by Giambrone’s firm in conjunction with a second central London law firm. The firms have instructed barristers who specialize in financial services litigation.
Giambrone gave The Times of Israel the names of five Israeli companies he said may be named as defendants in the lawsuit. The Times of Israel contacted these firms; none had responded to the allegations by the time of publication.
Giambrone said his clients who were allegedly defrauded by Israeli binary options firms include many residents of Kuwait, Saudi Arabia and Egypt.
The law firm has also announced that it will hold a series of seminars in the Middle East between June 5 and 15 to assist and inform additional thousands of allegedly defrauded investors about how to launch litigation.
Demand from defrauded binary options and forex traders in Arab countries has been so high, said Giambrone, that his office has been overwhelmed.
“The number of people signing up is unbelievable. This is becoming too big for us. In places like Kuwait, these forex scams are becoming headline news because of the sheer number of people involved.”
While some fraudulent companies operating from Israel may have falsely believed they were safe from detection because they used fake names and addresses as well as secure VoIP phone lines, Giambrone described how his law firm has in many cases been able to follow the trail of fraud back to Israel and discover the real names and personal information of alleged executives of companies.
“Most of the Israeli companies use a Cyprus vehicle to be passported in Europe. They then use the false pretense that this is a legitimate British company with a London address. Our Arab clients like dealing with British markets. One of our clients tracked down the number that called him and learned it used to be hired to a virtual office and that the call had been redirected to Israel. He realized he had actually been speaking to someone in a back office in Israel.”
Not good for Israel
What happens if not just a handful of Arab clients, but thousands, tens of thousands, or hundreds of thousands, realize they were defrauded by people calling from Israel?
“It’s certainly not good for Israel,” said Gadi Wolfsfeld, a professor of political communication and hasbara (public diplomacy) at IDC-Herzliya. However, he added, from a diplomatic point of view, most Jews and Arabs think whatever they think about the (Israeli-Arab) conflict and a single event will not change those views over the long term.
While some companies may have believed they were safe from detection because they used fake names and addresses and secure VoIP phone lines, the London law firm has followed the trail of fraud back to Israel and discovered the real names and personal information of alleged executives
Nevertheless, Wolfsfeld was optimistic, perhaps naively given the past decade’s inaction, about the government’s motivation to crack down. “If it’s against the law, the Israeli authorities will shut them down. If there are Israeli companies that are breaking the law, I don’t think any government would have any problem going after them.”
Another source familiar with international law raised another potentially troubling possibility for those currently involved with fraudulent companies.
“In theory, if a country is able to trace multiple cases of fraud to a specific individual in Israel, they could demand their extradition,” he said.
For his part, Giambrone said that the fact that so much alleged fraud is being traced to Israeli individuals is “putting a bad light on Israeli industry worldwide.”
“Israel used to be known as the startup nation,” he said. “Now its reputation is being tainted by the fact that there are a number of crooks using Israeli IT ability to create very pretty fake websites, using SEO (search engine optimization) and Google to target victims into thinking they are doing legitimate trading.”
Giambrone said that aside from salaries, he believes much of the ill-gotten gain of fraudulent forex and binary options companies never enters Israel but is siphoned to offshore companies.
“Just for example, we successfully represented a Ukrainian investor who recently got her money back, and the payment was credited to her credit card from a company that was based in Dominica.”
In his letter to the Justice Ministry, Giambrone also wrote that the risk of international money laundering operations relating to the fraudulently obtained money is very high, “as most of these companies are associated with offshore holding companies in the Caribbean or the Seychelles, notoriously known as tax havens.”
He added, “the recent Panama Papers scandal shows how these offshore entities are more and more frequently used for tax avoidance purposes, so the Israeli tax authorities may also have an interest in finding out how these local operations are run locally if the investors’ funds are channeled overseas.”
Giambrone said British courts have the ability to open bank accounts and freeze assets even in tax shelters that are former colonies like the British Virgin Islands.
“If we can get the court to do that, it will be a great success, like the Panama Papers II. We will find out exactly where all the money has gone.”