Facebook bans ads for binary options, cryptocurrencies and ICOs

Crackdown comes after pressure from Canadian and US law enforcement, amid efforts to curb binary options crime, much of it based in Israel, and cryptocurrency fraud

A Facebook ad for an Israel-based binary options firm posted April 19, 2016 (Screenshot)
A Facebook ad for an Israel-based binary options firm posted April 19, 2016 (Screenshot)

Facebook announced it was banning all advertising for binary options, cryptocurrencies and initial coin offerings, following many months of pressure from both the FBI and Canadian securities regulators who have been investigating online investment fraud.

“We’ve created a new policy that prohibits ads that promote financial products and services that are frequently associated with misleading or deceptive promotional practices, such as binary options, initial coin offerings and cryptocurrency,” Facebook product management director Rob Leathern wrote in a blog post announcing the move on Tuesday.

“We want people to continue to discover and learn about new products and services through Facebook ads without fear of scams or deception,” he elaborated. “That said, there are many companies who are advertising binary options, ICOs and cryptocurrencies that are not currently operating in good faith.”

The goal, he said, is to “make it harder for scammers to profit from a presence on Facebook.”

Jason Roy (Courtesy)

Jason Roy, the chairman of Canada’s Binary Options Task Force, told The Times of Israel that the ban came about as a result of talks that he and the FBI have been having with Facebook and Google concerning their acceptance of advertising for the binary options and cryptocurrency industries.

“We had been talking with Facebook, as was the FBI. I am not sure what made them make the final decision, but we are very pleased and feel it will have an impact on limiting victims going forward.”

Roy and the FBI have for months been discussing with social media platforms the prevalence of advertising for the widely fraudulent binary options industry. The Israel-centered fraud, through which victims worldwide have been fleeced out of billions for the past decade, was finally outlawed by the Knesset in October, in the wake of investigative reporting by The Times of Israel since March 2016, with the ban talking effect last weekend.

Some of the same Israeli scammers have turned to cryptocurrencies, The Times of Israel has been told, but unlike Israel-centered binary options fraud, cryptocurrency scamming is being carried out by deceptive operators all over the world.

“This policy is intentionally broad while we work to better detect deceptive and misleading advertising practices, and enforcement will begin to ramp up across our platforms including Facebook, Audience Network and Instagram,” Leathern said. “We will revisit this policy and how we enforce it as our signals improve.”

The Times of Israel spoke Wednesday about the new Facebook ban to a former PPC (pay-per-click) expert who worked for the binary options industry before quitting in disgust several years ago. This expert, who asked not to be named, estimated that Facebook accounted for 15-20 percent of paid-click traffic to binary options and fraudulent ICO/cryptocurrency websites, while the majority of paid traffic still comes from from Google.

“I’m not surprised that Facebook banned those ads,” he said, “as people probably complained that they didn’t like seeing so many ads for ICOs and cryptocurrency, which would show up again and again when people showed interest in anything to do with cryptocurrency, or investing, or met a certain demographic criteria.”

Asked how people inside the binary options and ICO industries will respond, he replied, “I doubt that they will be able to game the system too much on Facebook, although a bit of that is inevitable. I think binary options and ICO advertisers will start to spend more on arbitrage and other PPC types of sites like Taboola instead of Facebook, but still their largest budget is going to stay on Google AdWords.”

The Times of Israel contacted a spokesperson for Google to ask if the Internet giant plans to follow Facebook’s example but had received no reply ahead of publication.

The new Facebook policy states that ads cannot promote binary options, cryptocurrencies and ICOs (initial coin offerings), which are a means of raising capital by selling digital currency that can then be traded. The digital coins or tokens represent the ability to do things within the company’s application. Facebook said examples of fraudulent ads include phrases like “use your retirement funds to buy Bitcoin!”

Fraud is common in the world of red-hot digital currencies such as bitcoin. This week, for instance, the US Securities and Exchange Commission shut down an initial coin offering by a Texas company called AriseBank. AriseBank was accused of relying on celebrity endorsers such as boxer Evander Holyfield and social media to cheat investors out of $600 million with a goal of $1 billion for a currency it called “AriseCoin.”

Chairman of Israel Securities Authority Shmuel Hauser attends a conference in Jerusalem on June 19, 2017. (Yossi Zeliger/Flash90)

The fraudulent binary options industry is an Israel-based enterprise which flourished with almost no intervention by law enforcement since 2007. Fewer than 20 Israelis have been arrested for binary options fraud, and none has been indicted.

The industry routinely uses social media platforms both to draw in victims and to recruit staff.

Israel’s law to ban the binary options industry took shape after the then-Israel Securities Authority chairman Shmuel Hauser, alerted to the scale of the fraud by The Times of Israel, promised in August 2016 that he would take the necessary steps to thwart the fraudsters. That same month, Jewish Agency chief Natan Sharansky urged the government to close down the “repugnant, immoral” industry. The Prime Minister’s Office subsequently called for it to be banned worldwide.

Hauser drafted a bill that was shepherded toward October’s final approval by the Knesset Reforms Committee, over furious opposition by key players in the industry and their lobbyists.

Illustrative: An online binary options trading platform, advertised on YouTube (YouTube screenshot)

While Israeli authorities have failed to convict or even indict anybody, the FBI has taken on the work, and agents flew here earlier this month. The FBI agents, accompanied by Israeli police officers, visited the Ramat Gan offices of the major binary options platform provider SpotOption on January 8. The company’s owner, Pini Peter, told The Marker business daily that the visit was not a raid, that the FBI had taken files from SpotOption’s computers, and that he had cooperated fully with the US authorities.

An online recruiting advertisement for binary options company BetaMedia, the Israeli operational name for 24Option. (Screen capture: Facebook)

The FBI also questioned Yossi Herzog, the owner of Yukom Communications Ltd., an Israeli company that has run the websites Bigoption.com and Binarybook.com. The CEO of Herzog’s company, Lee Elbaz, was arrested by the FBI in September when she landed at JFK airport, and remains under house arrest in the US until her trial. She is suspected of wire fraud and conspiracy to commit wire fraud, violations that can carry up to 20 years in prison each.

In a bombshell speech at a meeting of the Reforms Committee last August, Israel Police Superintendent Gabi Biton said Israeli crime kingpins were behind the binary options industry and that organized crime in the country has been massively enriched and strengthened as a result of law enforcement’s failure for many years to grasp the vastness of the problem.

“Our eyes have been opened,” said Biton, who investigates financial fraud and money laundering. “What we’re seeing here is a massive organized criminal enterprise. We are talking about criminals at various levels of crime organizations, up to the very top.”

At its height, binary options was estimated to bring in $5 billion-$10 billion a year. Hundreds of firms have operated from Israel, employing thousands of Israelis, defrauding customers all over the world.

Fraudulent Israeli binary options companies ostensibly offer customers worldwide a potentially profitable short-term investment. But in reality — through rigged trading platforms, refusal to pay out, and other ruses — these companies fleece the vast majority of customers of most or all of their money. The fraudulent salespeople routinely conceal where they are located, misrepresent what they are selling, and use false identities.

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