A publicly traded Australian payments company may have facilitated close to $69 million (100 million Australian dollars) in a single month in 2018 on behalf of an Israeli-owned online trading firm, an article in the Australian Financial Review has revealed.
The $69 million figure, if accurate, suggests that at least two online trading firms whose Israeli owners are under criminal suspicion in Israel and the United States may have earned much more than previously thought. The figure also highlights the lack of available information on the amount of money generated by underground online trading industries and the amount of alleged dirty money entering Israel’s economy through such activity.
The payment facilitator, iSignthis Ltd., was until recently a rising star of the Australian Securities Exchange but has been suspended from trading for a month while regulators scrutinize whether it facilitated payments for allegedly fraudulent financial trading websites, the October 28 article in the Australian Financial Review reported.
The probe was precipitated by a critical report issued last month by an Australian company called Ownership Matters, which provides independent investment advice to institutional investors.
In a series of publicly available responses released on October 28 to questions from the Australian Securities Exchange, iSignthis Ltd. acknowledged that between January 3 and February 9, 2018, it facilitated payments for OTCapital.com, a forex and CFD trading website controlled by Israelis Ido Fishman and Gil Yakir Bachar.
OT Capital, also known as OT Markets, was not an independent entity but used the Australian Financial Services Licence of another online trading company, AGM Markets, which operated a website called Alphatrade.com, and which was controlled by Israelis Yossi Herzog and Kobi Cohen, according to Australian regulators.
iSignthis stopped facilitating payments for OT Capital after just a month, when in February 2018 the Australian Securities and Investments Commission (ASIC) froze bank accounts associated with OT Markets, AGM Markets and a third company called Ozifin Tech over concerns that these companies were engaging in conduct that was “misleading or deceptive, and/or unconscionable.”
Although the $69 million figure pertains to a single month, there is no available information suggesting that OTCapital’s revenue stream for January 2018 differed significantly from that of other months.
‘Misleading’ and ‘unconscionable’ behavior
ASIC has requested that AGM Markets, OT Markets and Ozifin be wound up due to their allegedly misleading behavior. Hearings in the case are ongoing.
According to ASIC, the three companies sold contracts for difference (CFDs), margin foreign exchange contracts (margin FX contracts) and binary options to retail clients in Australia over the internet. After investors made an initial deposit with the company, clients would be contacted by an account manager. These account managers would offer personal advice to clients, persuade them to deposit additional funds using high pressure sales tactics, and encourage clients to provide remote access to their computers, in one case going so far as to remotely conduct a transaction in a client’s bank account.
ASIC said that in about November 2017, it began receiving complaints from customers of OT Markets that the company had caused them significant financial losses. ASIC alleges that the three companies misled clients in Australia about how they earned money, the risks associated with the financial products, and the fact that the company’s interest and the investor’s interests were not aligned.
ASIC also claimed that the companies engaged in “unconscionable” behavior by “advising unsophisticated investors, including retail clients who appear to have been vulnerable to sales tactics promising short term and unrealistic financial gain, to invest in complex financial products, without adequately explaining the operation of, or risks associated with, those products.”
Indictments against the owners
The individuals behind OT Markets and AGM Markets have been the subject of prosecutorial interest in both Israel and the United States.
On August 2, Israel’s state prosecutor announced that it intended to indict the binary options company Gal Media Trade, its owner Ido Fishman, and several of its employees on charges of fraud pending a hearing. Gal Media Trade ran the Israeli binary options website itrader.co.il and the state prosecutor estimated it had “had thousands of clients who made hundreds of millions of shekels worth of trades.” Ido Fishman, the owner of Gal Media Trade, also controls OT Markets, according to the Australian securities regulator.
Meanwhile, the US Department of Justice indicted Yossi Herzog, one of the owners of AGM Markets, in February over an alleged $145 million in connection with the websites BigOption.com and BinaryBook.com. The CFTC sued Herzog and Kobi Cohen on August 12.
The iSignthis revelation that it may have processed $69 million worth of payments for OTCapital.com in a single month hints at the possibility that the online trading empires of suspects like Ido Fishman, Yossi Herzog and Yakov (“Kobi’) Cohen may have been even bigger than initially estimated by prosecutors.
iSignthis told the Australian Securities Exchange that it had earned about AUD 1.28 million from services provided to OT Capital and related companies. The company disclosure at the time stated that it took a 1% merchant service fee from its clients for its payment facilitating services. These numbers suggest that it had facilitated AUD 100 million worth of payments from the Israeli online trading company.
In a July 2018 court filing concerning the ASIC request for liquidation against OT Markets and AGM Markets, the Australian securities regulator said many investors in the online trading websites had trouble withdrawing their funds once deposited. ASIC said it had not fully investigated how the companies made their money and whether they hedged clients’ deposits with a counterparty or not, but suggested that at least in some cases the companies may have made money when the client lost money, as was the case in the binary options companies investigated by US and Israeli authorities.
The Australian Securities Exchange also asked iSignthis about its relationship with the Israeli-owned online trading platform provider Tradologic. iSignthis said that it had had a relationship with the company but did not earn revenue from it. iSignthis has reported that much of its revenue in 2018 came from forex, CFDs and cryptocurrency trading but did not specify the names of most of its clients. Before its regulatory troubles, iSignthis had claimed in its marketing material that it was on track to process AUD 2 billion worth of payments in a year.
Call centers in Cyprus and the Philippines
According to the Australian liquidation court filings, OTCapital.com operated from call centers in Cyprus and the Philippines while AGM Markets (Alphatrade.com) operated from a call center in Israel known as Falcon IC&T Ltd, which according to Israel’s corporate registry is owned by Nissim Alfassi, one of nine suspects indicted by the US Department of Justice in February.
In June 2018, an Israeli-run call center in the Philippines was raided by Philippine police. The Israeli employees, many of whom previously worked for one of Ido Fishman’s call centers in Israel, were briefly jailed, then released after a delegation of prominent Israeli attorneys traveled to the Philippines and met with officials there. Social media posts showed that prior to their arrests, the mostly 20-something call center employees had enjoyed a luxurious beachfront lifestyle.
Fishman appears to have gotten his start in binary options as a partner of Lee Hayun in a company called Twenty Four Group Ltd., which ran Itrader.co.il before Gal Media Trade did so. Lee Hayun is the wife of Roey Hayun, who recently served a jail term for money laundering and running illegal gambling establishments in Israel.
Yoram Fay, an Israeli attorney who has sued several Israeli binary options firms on behalf of alleged victims abroad, told The Times of Israel that in recent years, Israel’s online trading industry has expanded to many corners of the world.
“I travel a lot and I see Israeli communities that make a huge amount of money from this industry. You see it in places like Kiev, Sofia, Cyprus, and Tbilisi. Israelis in these places get together and exchange tips about affiliate marketers or payment processors. There are luxurious villas in Cyprus with thirty rooms. The call center employees live in the villa. They sunbathe next to the pool then take a break and call investors to drive them crazy to take their money.”
An industry of unknown size and influence
Fay estimates that several thousand Israelis work in the fraudulent online trading industry, with some in Israel and others operating from abroad. But, he acknowledges, it is anyone’s guess how big this industry actually is and how much dirty money is flowing from these activities into Israel’s economy.
Ariel Marom, a Belarus-born Israeli banker and political activist who was one of the first Israelis to blow the whistle on Israel’s fraudulent online trading industry, believes that the forex industry, the precursor to binary options, was brought to Israel from Russia around 2003.
“There was a convergence of the Israeli underworld which had money to launder, Russians who had the forex expertise, and Israel’s high-tech industry which needed investors and investments. These three groups converged and within a few years you had close to 60 forex companies in Israel.”
Binary options, a simplified offshoot of forex, flourished in Israel for an additional decade before the binary options industry, but not forex or CFDs, was outlawed via Knesset legislation in October 2017. At the industry’s height, hundreds of companies in Israel stole an estimated billions of dollars. Many binary options operatives now offer fraudulent forex, cryptocurrency or other financial products as opposed to binary options.
Israeli law enforcement has proven unable or unwilling to effectively tackle the country’s internet scams, despite the fact that for several years they have operated at an industrial scale. The announced future indictment, should it come to fruition, against Gal Media Trade Ltd. would be the first prosecution of a binary options company for fraud.
US authorities, by contrast, are increasingly tackling the fraud. Earlier this year, the US Justice Department indicted 15 Israeli binary options operatives in connection with the allegedly fraudulent websites BigOption.com and BinaryBook.com. Five of them have pleaded guilty, while another, Yukom Communications CEO Lee Elbaz, was convicted by a Maryland jury on August 6 for her role in a $145 million fraud.
No one appears to know the size of this underground financial cyber-fraud industry, or how its revenues affect the Israeli economy.
Ronen Barel, a professor of economics at Israel’s Open University, pointed out that the phenomenon of Israelis traveling abroad to work in call centers may have made it difficult for Israelis as a group to get visas to the United States.
“Do you know what it’s like to be an Israeli trying to get a visa to the United States? Very unpleasant. One of the small repercussions of exporting fraudulent activity is that you don’t get visa waivers,” he said, referring to the ability of citizens of 38 other countries, but not Israel, to enter the United States without a visa.