For feted adtech startup, a meteoric rise partly fueled by alleged fraudsters

In 2017, the digital marketing company Webpals was a paragon of Israeli high-tech success. That year, leading business daily Globes chose Webpals CEO Inbal Lavi as one of its “40 most promising young Israelis.”

A year later Dun & Bradstreet ranked Webpals as the third-fastest-growing high-tech company in Israel. It also included Webpals in its much-discussed list of the 100 best high-tech companies to work for in Israel.

The company provided perks like gourmet coffee and massages, and employees spoke proudly of a corporate culture that supported advancing equality in the workplace and women’s rights.

In 2019, Lavi boasted about her company’s equal-opportunity hiring policies to the United Nations Commission on the Status of Women.

“Diversity, growth, opportunity, equality — these are not just buzzwords, they are the basis of a great company,” she said, seated next to Israel’s then-minister for social equality Gila Gamliel.

“And today I challenge all companies to treat diversity as a metric with which they measure their success.”

But a recent leak of US Treasury Department documents reveals that Webpals was also profiting from predatory businesses ranging from online gambling and porn to investment scams.

The documents, from what has been dubbed the FinCEN Files leak, reveal that between August 2011 and December 2015 the company’s bank accounts received payments from several firms involved in binary options, a now-outlawed industry largely fueled by sham investment vehicles designed to dupe innocent people out of their life savings.

The files also show that Webpals’s parent company XLMedia was paid by a shady offshore shell company that allegedly made money off online dating cons and has been accused on multiple consumer complaint websites of allegedly charging credit cards without permission. Another company doing businesses with XLMedia was Pernimus Limited, which owned the extramarital hookup site Ashley Madison and was reportedly associated with the escort industry.

A spokesperson for XLMedia described the relationships with companies engaged in forex, binary options or online dating as “peripheral” and no longer active.

Webpals is not the only Israeli tech startup with a shiny progressive veneer and loyal media following that has turned out under scrutiny to be involved in allegedly fraudulent, deceptive or unethical activity. Israeli companies show up again and again in the thousands of “suspicious activity reports,” or SARs, that make up the bulk of the FinCEN Files.

The documents open a window into the shadowy business relationships that often underpin what appear to be aboveboard, profitable enterprises.

On September 20, 2020, BuzzFeed News, together with the International Consortium of Investigative Journalists (ICIJ) and over 100 news organizations around the world, published a series of investigative reports based on a trove of  over 2,500 leaked documents from the US Treasury’s Financial Crimes Enforcement Network, or FinCEN.

Most of the documents are “suspicious activity reports,” commonly called SARs, that 90 banks and other financial institutions submitted to FinCEN between 2011 and 2017. FinCEN’s mandate is to combat money laundering.

US banks and other financial institutions are required by law to submit SARs when they suspect that a transaction or series of transactions is implicated in money laundering. The 2,500 leaked documents are a small fraction of the 12 million SARs submitted to FinCEN in 2011-2017.

Directing traffic

When Lavi joined Webpals in 2014, its parent company XLMedia had revenues of $50.7 million and profits before tax of $13.2 million. By 2017, its revenues were $137.6 million, and its profits had tripled to $39.3 million.

The company’s social media pages at the time showed its employees enjoying A-list musical entertainment, pool parties, and even a glitzy light show in the desert during which the company’s logo was projected onto the side of a mountain.

But in videos and written material, Lavi was vague about what the company did to earn so much money.

“We obtain high-quality traffic, whether on web or mobile,” she said in a 2015 presentation to a group called The Innovators and Investors Forum, “and we direct it to online businesses. We get paid according to our results. Once we direct a potential customer to an online business and he actually spends money, we share the revenue.”

(Lavi left the company in July 2019, citing changes in the company’s board of directors that restricted her autonomy and created workplace tension, according to a lawsuit she filed against the company. She now runs a startup called Woah Edutainment that teaches people to dance using their smartphones.)

An SAR filed on January 15, 2016, by the New York Branch of Barclays Bank PLC shone a light on some of the businesses Webpals and XLMedia were working with, expressing concern over a Barclays Corporate account in the name of “XLMedia PLC” and other bank accounts in the name of “WebPals.”

SARs are generally filed by bank compliance officers when they see a pattern of financial transactions that they suspect is indicative of money laundering. While regarded as potential red flags, the fact that a SAR has been submitted does not mean that the companies or individuals in question are guilty of any wrongdoing.

“Barclays NY is filing this Suspicious Activity Report (‘SAR’) as there are concerns that the USD wire activity involving XLMedia may contain illicit proceeds,” the report said. It stated that the bank was unsurprised to find payments to XLMedia from gambling sites, but had to lift an eyebrow at some of its other business partners.

“Given that XLMedia’s line of business includes engaging with online gambling sites, the commonality of so many counterparties in that industry is expected. However, some of XLMedia’s transacting counterparties have been at the center of allegations constituting fraud or unregulated trading in binary options, a high risk industry,” the report said.

The SAR said that from August 30, 2011, through December 22, 2015, the bank had observed a total of 1,720 wire transactions, totaling approximately $82,915,467.91, for accounts in the name of XLMedia.

Included among these were transactions with the Israeli forex and binary options companies Safecap Investments Limited (Markets.com, TopOption.com), Anyoption Holdings Limited (AnyOption.com), Stepbystep Services Limited, Banc de Binary Limited (Banc de Binary, Option.FM), STK Ltd (Stockpair.com) and CST Media Limited (Opteck.com).

During approximately the same period, the SAR said, bank accounts in the name of Webpals transacted with online trading companies Algo Trade Limited and iOption Global Group, as well as Global Transaction Services LLC and Global Transaction Services (UK) Ltd — whose owner Daniel Andrew Barrs was indicted in May 2016 in the US for conspiracy to commit money laundering.

The banking transactions described in the suspicious activity report suggest that WebPals and XLMedia were involved in affiliate marketing — acquiring leads for companies and receiving a commission for each first-time depositor.

Another SAR shows that in July 2016, XLMedia received money from Bulova Invest, a company based in the British Virgin Islands that reportedly ran scam dating websites where lonely men paid to chat with prospective romantic partners, or to watch them on webcams. Some of the websites allegedly owned by Bulova Invest included bediscreet.com, freesexmatch.com, getanaffair.com, hornyasia.com, saucysingles.com and upforit.com.

In the 2015 presentation, Lavi acknowledged that most of Webpals’s customers were online gambling sites and said that her company directed traffic to them through a network of thousands of informational websites designed and written in such a way as to rank high in Google searches.

“We write about game strategies, poker strategies, new games coming into the market, events, news related to the poker industry and tips for sports betting and we use this network to send traffic to [gambling] operators,” she said.

Lavi explained that Webpals also lured gamblers to gambling sites through the strategic purchase of Google and Facebook ads. But in the many interviews they have given, Lavi and other XLMedia executives have named only a handful of the thousands of such marketing websites their company owns.

In February 2017, XLMedia announced that it had acquired Clicksmob, an Israeli digital marketing company that shared many of its senior employees and its phone number with FXEmpire, one of the premier “news” sites for the forex, CFD and binary options trading sites.

‘Worst decision I ever made’

Ruzica, an event planner from Germany, thinks she may have stumbled into the world of binary options when she saw an ad while reading an online newspaper.

“I don’t remember if I sent my email and contact details. But I remember I was having a knee operation and I had been sitting in the doctor’s office for a long time when I got the first phone call,” she told The Times of Israel recently, recalling her vulnerable state at the time.

Ruzica told the caller she wasn’t interested, but he was persistent. “He kept calling and said if I give him my credit card details, it costs just 250 euros and I can test it out and he’s going to give me a bonus.”

Ruzica would end up losing 80,000 euros to Anyoption.com, which was a client of Webpals.

Ruzica was one of thousands of victims of binary options, an industry that flourished in Israel for a decade before it was outlawed via Knesset legislation in October 2017, largely as a result of investigative reporting by The Times of Israel that began with a March 2016 article entitled “The wolves of Tel Aviv.”

At its height, hundreds of companies in Israel employed thousands of Israelis who allegedly fleeced billions out of victims worldwide. The fraudulent firms would dupe victims into believing that they were successfully investing and earning money, encouraging them to deposit more and more into their accounts, until the company eventually cut off contact with the investor and disappeared with all or almost all of their money. Many of the Israeli firms have since relocated overseas and continued the scam.

“People think about killing themselves. They don’t know what to do, and they’re ashamed to even tell their spouse,” Ruzica said. “I don’t know why I did it. I was at a vulnerable place in my life. It was the worst decision I ever made.”

In Singapore, a 32-year-old woman actually did kill herself after losing money to Option.FM, a website run by the Israeli binary options company Banc de Binary, one of Webpals’ clients. She had been trying to invest money to pay for the medical treatment of her husband, who had cancer.

Her husband, who first spoke to The Times of Israel in 2017, is now raising their 6-year-old son alone.

“Until now, no single minute of my life has passed without thinking of her,” he told The Times of Israel recently. “I believe that if not for binary options, if not for the scammers, my wife would still be alive today.”

Fraud request

Several sources told The Times of Israel that Israel has so many digital marketing companies due to strong expertise it built up in this area during the early days of the online gambling industry.

“Israel was a hub for multiple gambling companies, like Party Poker, for instance. Even the father of online poker [Isai Scheinberg] is originally from Israel,” Anderson McCutcheon, a digital marketer who himself got his start in the gambling industry, told The Times of Israel.

“Digital marketing skills are the same across all products,” he said. “If you see advertisers like Booking.com or Airbnb — the skills that it takes to promote a gambling website and the skills that it takes to promote legitimate websites, they’re roughly the same.”

The industry is heavily reliant on Google and Facebook, which allow advertisers to target customers based on past browsing or purchasing habits. Having a list of people who have bought your product in the past allows Google and Facebook to find new customers with similar behaviors.

“Once you have a good seed audience, you can identify people with similar behavioral patterns, and target them with a product that you know they’re going to like. It’s roughly the same with Google. Google also allows you to import addresses, and then target people from a specific group.”

This is in fact one significant way binary options companies acquired victims, including many who lost their life’s savings, before Facebook banned binary options ads in January 2018 and Google banned them in March 2018.

According to labor lawyer and sociologist Nathan Newman, while targeted advertising can help legitimate businesses find customers, it holds a special appeal for unethical and illegal businesses that can see high returns from being connected with the right rube.

“If your leads are 20 percent of the population because you’re selling detergent, you want to attract a lot of people. It might not be cost-effective for you to pay a lot of money per click. But if it’s financial scams you’re selling, you’re willing to pay a lot per click because you don’t need a lot of people to click on your ad, just the people who are most likely to be your customers,” he told The Times of Israel.

In a 2013 paper, Newman argued that the amount of information Google and Facebook have about people allows seedy or predatory businesses to pinpoint consumers’ weak points, such as a gambling addiction or gullibility.

But McCutcheon said he believes only about 5 percent of digital marketing spending in Israel is for the promotion of scams.

“Illegitimate industries that are selling something harmful are simply not capable of the same level of spending as legitimate companies,” he surmised.

Investment from an oligarch

The Barclays Bank suspicious activity report revealed not only whom Webpals was doing business with, but who was raking in the profits. According to the SAR, on December 6, 2013, a Cayman Islands-based company called Israeli VC Partners LP sent a wire for $14,999,980 to Webpals Marketing Systems Ltd.

In December 2013, Israeli VC Partners LP had bought 18 percent of XLMedia for $15,000,000, according to an XLMedia filing ahead of going public on London’s Alternative Investment Market in March 2014.

According to the AIM admission document, the owner of Israeli VC Partners LP is Russian billionaire Viktor Vekselberg. After the IPO, he retained 10.11 percent of the company’s voting rights and was its second-largest shareholder. He reportedly sold his stake in the company in 2017. At the time of the IPO, the company’s other shareholders included businessman Zvika Barenboim and 888.com investor Shai Ben-Itzhak.

At the time of Vekselberg’s investment in XLMedia, he was best known for being one of Russia’s richest men and a close ally of Russian President Vladimir Putin on Jewish issues. (Vekselberg’s father was Jewish.) He took Russia’s side in its dispute with the US wing of the Chabad movement over the late Lubavitcher rebbe’s writings and helped bankroll Moscow’s Jewish Museum and Tolerance Center.

In April 2018, Vekselberg was sanctioned by the US Treasury Department together with 23 other Russian nationals for Russian “malign activity around the globe, including continuing to occupy Crimea and instigate violence in eastern Ukraine, supplying the Assad regime with material and weaponry as they bomb their own civilians, attempting to subvert Western democracies, and malicious cyber activities,” Treasury secretary Steven Mnuchin said in a statement at the time.

“Russian oligarchs and elites who profit from this corrupt system will no longer be insulated from the consequences of their government’s destabilizing activities,” he stated.

Only following the US sanctions did Vekselberg’s investments in six Israeli high-tech firms come to light in a 2019 Calcalist investigative report.

These six companies included two cybersecurity firms run by former Mossad operatives (Fifth Dimension and Deep Instinct), two companies that earned revenue from binary options and other alleged scams (Webpals and Credorax), the online freelancer marketplace Fiverr, and a venture capital firm, Firstime Ventures.

Asked whether it saw Vekselberg’s investments in Israeli high-tech as problematic, the Shin Bet security agency said it “is not the sort of topic we discuss in the media.”

But in 2014, its US counterpart, the FBI, published an op-ed penned by Boston agent Lucia Ziobro warning US tech firms against entering into partnerships with the Skolkovo Foundation, a purported innovation center set up by the Kremlin and headed by Vekselberg until 2019.

“The Foundation may be a means for the Russian government to access our nation’s sensitive or classified research, development facilities and dual-use technologies with military and commercial applications,” Ziobro wrote.

Israel’s anti-money laundering authority also declined to say whether Vekselberg’s investments were a cause for a concern, suggesting instead that The Times of Israel contact the Israel Securities Authority. A spokesperson for the Israel Securities Authority said she was not familiar with Webpals and therefore could not answer. A senior source within the Tax Authority who asked not to be named said that Vekselberg’s investments only interest the Tax Authority insofar as he is an Israeli citizen. (Vekselberg is reportedly an Israeli citizen but would likely be exempt from paying taxes due to Amendment 168 of the Tax Ordinance, which exempts new immigrants from taxes on income earned abroad.)

Vekselberg did not respond to The Times of Israel’s request for comment.

When reached for comment, a spokesperson for XLMedia sent The Times of Israel the following statement: “Historically, the Company has engaged with businesses operating in forex, dating and binary options but any such activities were considered to be peripheral to our core business and unrepresentative of our future direction, and were terminated some considerable time ago. The Company has always operated in full compliance with laws and regulations and has always been transparent with our investors about the verticals in which we operate. We regularly engage with all our suppliers to evaluate and ensure compliance, which is something we take very seriously.”

Saved by the bookie

XLMedia’s revenues plunged in 2020 to $54.8 million, down from $117.9 million in 2018, after Google demoted its casino sites in its search rankings at the beginning of the year. Another factor that the company said had suppressed its revenue was a decline in sports betting due to the cancellation of sporting events as a consequence of the coronavirus pandemic.

But a 2018 US Supreme Court decision overturning federal prohibitions on sports betting may change the company’s fortunes. Critics of the Supreme Court decision believe it could lead to addiction, including in young people, as well as “bad actors” entering the industry. Nevertheless, since the Supreme Court decision the sports betting industry has seen extraordinary growth. For XLMedia and Webpals, among other companies, this growth represents an opportunity.

“XLMedia has identified North America as a core target market… the Company will seek to.. increase its investment in the growing U.S. Sports market through partnerships and acquisitions,” said a December 10, 2020, press release.

Lavi did not respond to a request from The Times of Israel to comment. But a year before Lavi left Webpals, she defended the digital marketing industry, saying it was cleaning itself up.

At a March 2018 marketing-tech conference in Tel Aviv, Lavi was interviewed onstage by Meir Orbach, technology editor of the Calcalist business newspaper, who challenged her, albeit in a deferential way, about the nature of her business.

“Even though it makes a lot of money, there is a trend to speak of adtech and even marketing tech with a wink, with a negative valence. Can you understand why?” he asked Lavi.

“I think today we can see that very naturally, this industry is cleaning itself up,” Lavi replied. “The negative buzz is primarily connected to companies that provide less added value for customers.”

Orbach pressed further.

“One of the reasons adtech had this negative image is because it’s been associated with gambling. I understand that you are trying to diversify your activity in this area?” he asked.

But Lavi rejected the notion that there was anything wrong with Webpals’ clients.

“I don’t agree with that characterization of clean and unclean [gambling],” Lavi said. “I think it’s a matter of which clients you work with. In any business you could end up working with someone who doesn’t provide the goods and takes your money. We choose to work with clients who are traded on the London Stock Exchange, who are traded on the Swedish stock exchange, clients who have a significant reputation and sense of responsibility.”