In court battle, blockchain firms reveal ties to banned binary options industry

On November 23, a Tel Aviv judge appointed a temporary liquidator for the company IDC Investdotcom Holdings, better known as Invest.com, after it failed to mount a defense in court against a November 15 petition to wind it up. The petition to liquidate the firm, which is run by the owner of Jerusalem’s Beitar soccer team, reveals the close ties between Israel’s recently outlawed binary options industry and the country’s newly thriving cryptocurrency scene.

The November 15 petition was brought by 17 former shareholders of the now-defunct Israeli binary options company AnyOption. It asked the court to wind up IDC Investdotcom Holdings Limited, a Cypriot company that the petitioners allege was run from Israel. The former AnyOption shareholders claim that they were also shareholders in IDC Investdotcom Holdings, but allege that one of the company’s directors, Moshe Hogeg, has systematically robbed the company of its assets and profits in such a way that the firm, which should have been highly profitable, has become insolvent and cannot cover its basic operating costs.

A spokesman said Hogeg is countersuing AnyOption in a Cypriot court.

The 17 petitioners claimed that despite the fact that the company, better known as Invest.com, has carried out two successful ICOs (Initial Coin Offerings), each of which netted tens of millions of dollars, Hogeg has not shared the revenues from these public offerings with the petitioners, as they claim he was contractually obliged to do, but instead has unlawfully taken money for his own use.

Hogeg, one of Israel’s highest-profile cryptocurrency entrepreneurs, has in recent months gone on a multimillion-dollar spending spree. On June 20, 2018, it was reported that he had purchased $19 million of land in the wealthy Tel Aviv suburb of Kfar Shmaryahu from businessman Ilan Ben-Dov, paying for part of it in Bitcoin. In August, he bought Beitar Jerusalem, one of Israel’s top soccer teams, for $7.2 million. In October, Tel Aviv University announced that it had accepted a $1.9 million donation from Hogeg to establish the “Hogeg Institute for Blockchain Applications” at the university’s Coller School of Management.

Invest.com has yet to file a response to the petition, but a spokesman for Moshe Hogeg told the Times of Israel that the company is not insolvent. “Nevertheless there’s no way to anticipate what will be the court’s order in a legal procedure,” he added.

Hogeg presides over a network of companies registered both in Israel and abroad. He is the co-founder and managing partner of Singulariteam, a private venture capital fund that invests in Israeli technology firms. He is a founder of the Alignment Blockchain Hub, a company that consults and helps develop blockchain early-stage projects. Singulariteam’s portfolio, according to its website, includes such companies as Invest.com, Sirin Labs, GetStocks, Yo and Mobli.

According to the court petition, Singulariteam owned 18.69 percent of IDC Investdotcom Holdings Ltd., and Hogeg was a director of the company.

According to Hebrew media reports, Singulariteam has claimed in response to the allegations that it sued AnyOption and its shareholders in Cypriot court on May 14 for fraud and breach of contract. A spokesman for Hogeg confirmed to The Times of Israel that such a lawsuit had been filed. He added that AnyOption has received all the tokens in Stox to which it was entitled.

From binary options to cryptocurrencies

Israel outlawed the binary options industry in October 2017, in part as a result of enormous pressure experienced by representatives of the Israel Securities Authority at meetings of the International Organization of Securities Commissions (IOSCO).

A binary option is an option contract whose payoff depends on the price of another asset, like gold, wheat, or Apple stocks. If the holders of the options guess correctly about the direction that the price has moved at the time of expiry, they earn a predetermined amount of money, and, if not, they lose the money “invested” in a particular trade. In the case of the Israeli binary options industry, however, companies offering these contracts were largely fraudulent. They would dupe victims worldwide 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. The industry is estimated to have stolen billions of dollars from victims worldwide over a period of 10 years. Since Israel banned the industry, many former binary options operatives have pivoted to other financial products, including initial coin offerings or ICOs.

An Initial Coin Offering is a form of fundraising where a startup, instead of issuing shares to the public, issues a special token, or digital coin, that can be used within that company’s platform to access goods and services. The startup thereby acquires both users and funding, and the hope is that if the startup is successful, the value of the token will rise on secondary markets, enriching its holders.

Until it merged with Invest.com in June 2017, AnyOption was one of Israel’s longest-lived binary options firms, with a history of warnings from foreign regulators.

In December 2009, Argentinian regulators ordered the company behind AnyOption.com to stop soliciting customers in Argentina. In December 2011, Italian regulators issued a warning about the company for operating without authorization. In December 2012, the company received regulation in Cyprus, giving it license to operate throughout Europe. Despite its regulation in Europe, in September 2015 the Ontario Securities Commission issued a warning to investors about AnyOption.com and in the same month the Financial and Consumer Affairs Authority of Saskatchewan in Canada issued a cease trade order against the company.

According to an affidavit filed by Shy Datika, one of the primary shareholders of AnyOption, Invest.com merged with AnyOption in June 2017, when it became clear that Israel would soon pass a law banning binary options and it would no longer be legal for AnyOption to sell binary options. Datika’s sister, Liora Shimoni, happens to be a top official in the office of the State Comptroller, the government body whose role is to be a watchdog against corruption.

“On the eve of signing the merger with IDC Investdotcom, AnyOption had millions of customers, licenses to carry out its activities in Europe and elsewhere, and cash of more than a million dollars. It had professional and well-trained sales people, an advanced trading platform and intellectual property,” reads the petition.

According to Datika, Invest.com was interested in acquiring all these assets for its own business. In the beginning, claimed Datika, Invest.com offered forex and CFD trading to investors, but later it decided to try to raise money through Initial Coin Offerings of cryptocurrencies.

According to Datika, despite the fact that IDC Investdotcom is a Cyprus-registered company, most of its employees and senior management, including Hogeg, operated out of the offices of its Israeli subsidiary at 2 Jabotinsky Street in Ramat Gan.

In February 2018, according to Datika, AnyOption and Invest.com changed the terms of their merger agreement. Both agreements stipulated that AnyOption shareholders would own 35 percent of Invest.com, but the new agreement stipulated that instead of paying the company $7 million, Invest.com would pay AnyOption shareholders $3.5 million as well as shares or tokens of Stox, a new cryptocurrency company they were launching.

In August of 2017, Stox raised $34 million worth of Ethereum cryptocurrency through its ICO, the petition claimed. In the following days, the value of the Ethereum the company raised rose to $60 million. In February 2018, the company carried out another ICO, for a project called Zodiac, that reportedly raised $33 million, the petition claimed.

According to the petition, Invest.com should have earned millions from its ICOs and other activities, “but the revenues from all this activity did not enter the coffers of Invest.com and were instead stolen by Hogeg,” leading Invest.com to become insolvent, the petition claims.

A spokesman for Hogeg told The Times of Israel that “Zodiac is a private project that never issued any tokens” and said that AnyOption had “received all the tokens they were entitled to in Stox.”

The petition contains many details that shed light on the operations of Israel’s budding blockchain industry, in which Hogeg’s Singulariteam is a prominent investor. For instance, the petition alleges that software and employees from the binary options industry were re-purposed to sell ICO tokens to investors.

The petition claims that in March 2018 Hogeg set up a Cyprus company called C3 Tech Solutions Limited whose shares are registered in the name of Roee Brocial, an employee of Singulariteam, who works as Hogeg’s private driver.

According to the petition, C3 Tech Solutions Limited operates a website called coinshop.biz that is a trading platform for buying and selling cryptocurrencies. According to the petition, the company used AnyOption’s software and employees without Invest.com earning any of the revenues from this activity.

In his affidavit, former AnyOption shareholder Datika also claimed that earlier this month, when Invest.com was moving offices, an employee inadvertently sent Datika some internal documents.

According to Datika, these documents revealed that a daughter company of Invest.com, IDC Global Services in Belize, had entered into two contracts in 2016 with two additional companies that offered to recruit investors for Invest.com. These were a British Virgin Islands company by the name of Ladera International S.A. and an Israeli company by the name of Protrader A.D.I. Ltd.

According to Datika, the contracts were exceptionally generous towards the counterparty. Protrader was offered 80% of the value of each customer it introduced to Invest.com, while Ladera earned 72.5% of value of each customer. These agreements, Datika asserted, made no financial sense for Invest.com.

Documents seen by The Times of Israel reveal that Ladera International is associated with an Israeli company called Yaniv Levi Investments, located in a wine shop at 126 Ben Yehuda Street in Tel Aviv. It is owned by a former employee of the forex company Markets.com named Yaniv Levi. Roman Abramov, a close friend of Yair Netanyahu, the prime minister’s son, is a former employee of  Yaniv Levi Investments, Abramov confirmed to The Times of Israel, although he refused to say what his role was at the company.

Israel’s corporate registry shows that Protrader A.D.I. was founded in 2012 by a man named Omer Cohen. Shortly afterward its shares were transferred to a man named Omri Peer, also a former employee of Markets.com.

In a 2016 lawsuit against Protrader A.D.I. by a supplier of marketing software, the supplier asserted that while it installed software at the offices of Protrader in Tel Aviv, it was asked to send an invoice to an company registered in Anguilla called Investing Solutions Ltd., at an address in Bulgaria. Investing Solutions Ltd. in Anguilla is associated with the binary options website Everyoption.com.

In addition, Datika said he learned that on September 27, 2018 Hogeg had created a Cypriot company called HMC Ventures Ltd. which he believes is meant to operate Invest.com’s new venture in collaboration with the US-based cryptocurrency exchange Bittrex following the ICO of Zodiac. The petition claimed that 15 percent of Zodiac’s tokens were purchased by Japanese investors and that the petitioners suspect the Japanese investors’ share of the company may have been erased.

A spokesman for Hogeg said that Zodiac did not have an ICO.

According to the petition, Invest.com has laid off many employees of late and is unable to pay their final salaries or benefits. Nor is the company paying the operating costs of what was formerly AnyOption, including rent, accounting fees, taxes in various jurisdictions, to the tune of hundreds of thousands of dollars, according to the petition. Invest.com also owes hundreds of thousands of dollars to the law firm Herzog, Fox & Ne’eman, which represents it on various issues, according to the petition.

Friends in high places

Hogeg, 37, is the son of a career Israel Defense Forces officer who went on to work for the Defense Ministry, and a mother who worked as an artist. Hogeg grew up in Beersheba, where he was an avid sports enthusiast, but never completed his high school matriculation exams, according to a 2014 interview he gave to the Globes business daily. After a seven-year army career as a dog trainer, Hogeg reportedly left the military and caught the entrepreneurship bug.

His first startup, founded in 2008, was called Web2Sport, and allowed soccer fans to watch a live match and make decisions in real time about what the players should do next, effectively crowd-sourcing the role of the team’s coach. The startup lasted about a year, but during its short lifespan attracted several wealthy and prominent investors. Among them were Alon Carmel, a founder of JDate, and Israeli businessman Danny Rubinstein, as well as Easyforex, one of Israel’s first forex companies. According to the Cypriot corporate registry, two of the early shareholders of Easyforex were brothers Joseph and Ishay Mor. Ishay Mor and their father Pesach Mor are directors of Lukoil Israel, a subsidiary of the Russian multinational energy corporation Lukoil.

In 2010, Hogeg launched a mobile photo and video sharing website called Mobli, which many investors hoped would pose a serious competition to sites like Vine and Instagram. Even though it ultimately failed to gain widespread adoption, Mobli attracted prominent investors as well, including, reportedly, tennis star Serena Williams, Mexican billionaire Carlos Slim, and Kazakh businessman Kenges Rakishev.

Rakishev gained prominence in 2007 when he brokered a deal for Kazakh oligarch Timur Kulibayev, the son-in-law of Kazakh President Nursultan Nazarbayew, to buy the home of England’s Prince Andrew for a reported £15 million ($ 21.8 million). Rakishev’s father-in-law Imangali Tasmagambetov is currently the Kazakh ambassador to Russia and previously served as the country’s defense minister and deputy prime minister.

In 2012, Rakishev and Hogeg launched the venture capital fund that later became known as Singulariteam. Singulariteam has been one of Israel’s most active investment funds.

Hogeg has been associated with several Israeli blockchain startups that raised vast sums through initial coin offerings, including Sirin Labs, which reportedly raised $158 million from investors around the world in late 2017 and Bancor, where Hogeg says (Hebrew) he served as an adviser and investor, which raised $153 million in June 2017. The Israeli company that operates Bancor, Localcoin Ltd. is owned by Prime Minister Benjamin Netanyahu’s niece, Galia Ben-Artzi, among other shareholders, according to Israel’s corporate registry.

In a statement to The Times of Israel, a spokesperson for Bancor said Hogeg “is neither an investor in Bancor nor is he an advisor of the project. He purchased BNT, the Bancor Network Token, in Bancor’s Token Generation Event (TGE) in June 2017, like more than 10,000 other individuals across the globe who participated in the TGE.”