After a three-month court battle by The Times of Israel, together with Britain’s The Financial Times, and separately, the Haaretz newspaper, an Israeli judge has lifted a gag order on two more of ten suspects arrested on November 18 as part of an alleged crypto scam that defrauded victims worldwide of colossal sums of money. Their names are Yaron Shalem and Ido Sadeh Man.
Neither responded to a request for comment from The Times of Israel. Shalem was a vice president at the venture capital firm Singulariteam, and until recently the CFO of Celsius Network, a multibillion-dollar cryptocurrency lending platform. Sadeh Man is the founder of the Saga cryptocurrency company.
Lawyers for Shalem told the Financial Times he “acted in accordance with the law and strongly and utterly rejects any attempt to associate him with any act of fraud.” They added: “Our client is certain that at the end of the investigation, it will be found that he had committed no wrongdoing.”
Celsius Network has stressed that Shalem’s alleged offenses are unrelated to his period with the firm; it said he was suspended when Celsius learned that he was being investigated and is no longer employed by the firm.
The two men, whose names were barred by the courts from publication prior to Tuesday, are suspected along with the other eight of “carrying out investor fraud through a number of cryptocurrency enterprises” and pocketing tens of millions of shekels. The charges facing the ten include fraud, aggravated fraud, embezzlement, conspiracy to commit a crime, money laundering and tax violations.
The arrest of the 10 suspects on November 18, in a case that has been dubbed “The Big Game” by police investigators, was an unprecedented event as Israeli police have only rarely investigated large-scale digital fraud cases. Only two of the names were made public on the day of the arrest — those of Beitar Jerusalem owner Moshe Hogeg and former Singulariteam CEO Adi Sheleg — while the name of a third suspect, Avishai Ziv, was made public on February 10.
But after a three-month court battle, invoking the Open Court Principle that is a foundational Israeli law, judges in the case agreed to lift the gag order on Shalem and Sadeh Man. Five names still remain under gag order. (The Times of Israel is represented in the ongoing court battle by Attorney Amir Kedari, of Tal, Kadari, Shamir & Co.)
The ten arrested men are among the most well-known, and in some cases internationally lauded, Israeli pioneers of distributed ledger technology, more commonly known as blockchain technology. Hobnobbing with the global rich and famous, some have run companies whose dollar valuations run in the 8, 9 or 10 figures, and been consulted by leading international regulators and government ministers.
Their arrests are unparalleled in terms of the sums they are alleged to have stolen and the fact that their alleged crimes were internet-based and largely targeted investors abroad. Over the past 15 years, Israel has become a hub of investment fraud against overseas victims, targeting both sophisticated and mom-and-pop investors through forex, binary options and crypto fraud, with most of these alleged crimes going uninvestigated and unprosecuted.
According to their arrest warrants, all ten of the men are suspected of raising vast sums of money for a series of unnamed cryptocurrency ventures during an unspecified time period. Instead of using the money to develop a product, the arrest warrants allege, they used it for their personal expenses or their own private business ventures.
“Investors were presented with an orderly plan for investing money and developing the ventures, including false advertising of purported investments by public opinion shapers,” police alleged in several of the arrest warrants. “In this way, investors were persuaded to put millions of dollars into those ventures. In reality, their money was thrown away, as it was not invested in accordance with the plan that was presented, but was stolen and transferred to the pockets of the suspects, who used this money for their personal use or their personal business.”
Hogeg and the other nine “Big Game” suspects are alleged to have worked together to solicit hundreds of millions of dollars in investments from the public over the internet and through other means.
Most of the suspects are linked to Hogeg, 40, the famously flamboyant owner of the Beitar Jerusalem soccer team, who is also suspected of sex trafficking and statutory rape. The other men are suspected of financial crimes but not sexual offenses.
A law enforcement source, who spoke on condition of anonymity, told The Times of Israel that internet fraud is increasingly becoming a top source of money for criminals but that it has taken police in Israel and around the world a while to catch on.
“It’s not like a bank robbery, where you have a robber, a gun and eyewitnesses. This is a type of crime where there’s no physical evidence; it takes place in the ether,” the source said.
From Singulariteam to Celsius
The suspect who has aroused the most intense interest worldwide is Yaron Shalem, whose name was leaked online in the days following his arrest.
Until March 2018, Shalem was a vice president at the venture capital firm Singulariteam, where Hogeg was the chairman and managing partner.
Shalem was until recently the CFO of Celsius Network, a cryptocurrency lending platform with offices in Israel that has grown explosively over the last year, and that recently received a $750 million investment led by a major equity fund and a Canadian pension fund. Celsius Network has said he was suspended when it learned he was being probed; he is no longer employed by the firm.
I tuned into the twitter spaces Celsius Network AMA and asked if their CFO Yarom Shalem was recently arrested in Israel as part of the Moshe Hogeg fraud case without the company disclosing it.
Not exactly an ideal answer pic.twitter.com/cCbJ5zWceN
— Nate Anderson (@ClarityToast) November 24, 2021
On November 24, short-seller Nate Anderson asked a representative of Celsius Network whether the company’s CFO had been arrested, but did not receive a conclusive answer.
On November 26, Celsius Network announced in a tweet that one of its employees was under police investigation in Israel, but did not name the employee.
We were recently made aware of a police investigation in Israel involving an employee. While this is in no way related to the employee’s time or work at @CelsiusNetwork, the employee was immediately suspended. We have also verified that no assets were misplaced or mishandled.
— Celsius (@CelsiusNetwork) November 26, 2021
In a message to The Times of Israel, Anderson said that Shalem’s arrest could further hurt the credibility of Celsius Network, which has already been accused by several US states of violating securities laws.
“The CFO is arguably the most important position at a company hoping to become an established crypto bank,” Anderson said.
“Many have already wondered aloud whether Celsius has been operating as a pyramid scheme; to have a CFO face criminal fraud allegations is a huge blow to its credibility.”
The Saga founder, who ‘provided insight’ for US government
Ido Sadeh Man is the founder of the Saga cryptocurrency company, whose advisory board included such illustrious figures as JPMorgan Chase International chairman Jacob Frenkel and Economics Nobel laureate Myron Scholes. Its 2018 white paper explained that Saga hoped to reform the global monetary system in a way that would provide a fairer “distribution of risk and reward.” By January 2021 the project had shut down and laid off its remaining employees.
In October 2018, Sadeh Man was invited to a prestigious meeting with US Treasury undersecretary Sigal Mandelker, who was visiting Israel as part of a Treasury Department delegation. While here, she led a roundtable with Israeli cryptocurrency entrepreneurs, including Sadeh Man, who “provided insight” into how the United States could regulate the blockchain industry without stifling innovation, several sources with knowledge of the meeting told The Times of Israel.
Sadeh Man had been handpicked by Israel’s Finance Ministry to attend the meeting as a leading light of Israel’s cryptocurrency industry.
The former auditor
Avishai Ziv, 40, whose named was released for publication last month, was the CEO of Singulariteam starting in May 2018 as well as the CEO of Alignment Group, an incubator of blockchain companies. An archived version of the website describes its advisory board as consisting of Hogeg, CoinTree CEO Uriel Peled, and Bancor project architect Eyal Herzog.
Prior to joining Singulariteam, Ziv had worked at Ernst and Young Israel as a senior auditor specializing in high-tech companies, according to his online biography.
Adi Sheleg, 47, whose name was permitted for publication along with Hogeg’s on the day of their arrest in November, was an executive at Singulariteam who left in 2018 after embarking on a romantic relationship with a female co-worker, his attorney said during his remand hearing. Sheleg is a shareholder in Singulariteam’s second and third funds.
During his November 18 remand hearing, a police investigator described Sheleg as “a central axis” of the alleged fraud, “even I would say an initiator of the significant crimes in the case.”
Which companies were involved?
Moshe Hogeg and his colleagues at the Alignment blockchain hub were behind numerous cryptocurrency ventures, including Sirin Labs, Stx Technologies Limited (Stox), Leadcoin, and PumaPay.
The arrest warrants do not indicate which companies are alleged to have been part of the fraud. However, the language of the arrest warrants echoes allegations leveled in a May 2021 lawsuit by former employees of Singulariteam against Sirin Labs, Stx Technologies Limited (Stox) and Leadcoin. The lawsuit is one of several lawsuits by former investors against Hogeg-led cryptocurrency companies that raised money through initial coin offerings, or ICOs. Most were settled out of court. According to court filings in this case, police froze the bank accounts of Singulariteam, Sirin Technologies, Webydo and Alignment.
An initial coin offering is a type of fundraising used by blockchain startups. The investor is presented with a short film about the startup, biographies of its founders, and a “white paper” explaining the technology and business plan in more detail. If the investor is impressed by the startup, he can buy tokens in its initial coin offering. These tokens often give him access to the product and if the product is successful, it is hoped, the tokens will rise in value on secondary exchange.
New sheriff in town?
The case against Hogeg and the other nine is unprecedented in terms of the amount of money alleged to have been stolen and the number of high-profile individuals arrested.
Over the past 15 years, as Israel has become a hub of investment fraud against victims abroad, police and justice officials have been criticized for rarely prosecuting suspects here.
That lack of action was thrown into sharp relief recently by a series of high-profile raids on alleged Israeli investment scammers instigated by German, Austrian and US law enforcement agencies, and carried out in Israel and a number of European countries. Among those arrested was a former colleague of Hogeg’s at the defunct Mobli social networking startup, Guy Grinberg, who is suspected of cryptocurrency-related crimes.
The US Justice Department recently announced that it was stepping up its enforcement of cryptocurrency-related crimes and that it has dedicated an entire unit to this mission.
Asked by The Times of Israel at the November 18 remand hearings of Hogeg and his colleagues if the FBI was involved in the investigation, police superintendent Ariel Friedman, the lead investigator in the case, offered only “no comment.”
Some observers have claimed that Hogeg’s outsized media presence made him “low-hanging fruit” for law enforcement to take long-overdue action.
“Where has the Israeli money-laundering authority been?” Maya Zehavi, an Israeli cryptocurrency entrepreneur, said to The Times of Israel by phone after news of the arrests became public. Zehavi also lamented what she perceived as the Israeli anti-money laundering authority’s heavy hand against ordinary crypto traders while it failed to investigate actual crimes.
“Instead of punishing mom and pop investors who want to deposit crypto in Israeli banks, why don’t they go after the people who actually stole ICO money?”
An Israeli expert on organized crime, who spoke to The Times of Israel on background, speculated that the arrests may be a product of Israel’s new government. Israel’s public security minister since June, Omer Barlev (Labor), has repeatedly vowed to strengthen law enforcement and the rule of law, including against organized crime and money laundering.
Both Barlev and his deputy minister Yoav Segalovitz declined to comment on the matter when approached by The Times of Israel.
Former employees of cryptocurrency companies launched by Hogeg described their offices as sleek and expensive — a mezuzah outside Hogeg’s office was rumored to have cost tens of thousands of shekels, according to one former employee of a cryptocurrency company owned by Singulariteam. Hogeg and his wife owned a Ferrari, two Mercedes cars and a Bentley.
Female employees, including those in senior roles, felt pressure from management to look young and attractive, the former employee told The Times of Israel. Sex-themed jokes or comments about women’s appearance were commonplace, the employee said, although she did not personally witness any graver sexual crimes.
On December 3, a court lifted the gag order on Hogeg’s alleged sexual crimes. He is suspected of sex trafficking, carrying out indecent acts, sexual harassment, operating a location for the purpose of prostitution, invasion of privacy and bringing an individual into prostitution. He is also suspected of supplying drugs and alcohol to underage girls.
The other suspects in the “Big Game” case are not suspected of sexual crimes.
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