In unique testimony, binary options kingpin slams ‘stupid’ US law enforcement

In his first-ever court testimony regarding his binary options operations, industry kingpin Pini Peter railed against American law enforcement, the media and even his Israeli competitors for allegedly conspiring to paint him as a criminal.

Peter, also known as Malhaz Pinhas Patarkazishvili, testified in Tel Aviv District Court last month in a preliminary hearing for a June 2021 class-action suit alleging that his now-defunct company SpotOption carried out “systematic fraud, unprecedented in scope, of investors in Israel and around the world.”

Shmulik Cassouto, an attorney who is representing the plaintiffs along with Nir Friedman and Shahar Capusha, told the judge he estimated SpotOption had carried out fraud to the tune of NIS 500 million ($134 million). Both SpotOption and Peter are named as defendants in the suit.

The testimony comes on the heels of a civil enforcement action by the US Securities and Exchange Commission, which in April 2021 accused Peter of defrauding US investors alone out of over $100 million. The SEC alleged that SpotOption had used “deceptive and manipulative” tactics, including rigging the trading platforms to fix the outcomes of trades. Peter neither showed up in US court nor sent an attorney to defend him against the allegations.

The SEC won a default judgment in January 2023, requiring SpotOption to pay the US government $140 million and Peter personally to pay $87 million. The judgment is not a criminal conviction and Peter has never admitted any wrongdoing. In March, Peter appealed the judgment.

Peter, 47, took the stand for the first time on June 26 to defend himself against separate allegations, in the Israeli class action lawsuit. He argued that his company was legitimate, and that those leading the charges against him had ulterior motives.

“It’s all political. There was an insane witch hunt against binary options from every direction,” he said.

In late 2017, the Israeli Knesset outlawed the binary options industry for being largely fraudulent and tied to organized crime. As one of the most dominant binary options companies, SpotOption and its representatives Moshe Avrahami and Miri Mileikowsky pleaded at the time on behalf of the entire industry in the Knesset.

But Peter claimed the ultimate decision to outlaw binary options was not the outcome of a fair parliamentary process but a conspiracy among his rivals.

“It was a terrific business, that’s the problem. We were so successful that the big forex companies and the banks decided to kill our product,” he told the court.

The fraudulent binary options industry flourished in Israel for over a decade, from 2007, when the first such company, eTrader, was founded, until the industry was outlawed by the Knesset in 2017, as a direct result of The Times of Israel’s investigative reporting, which began with a March 2016 article entitled “The wolves of Tel Aviv: Israel’s vast, amoral binary options scam exposed.” Many of the Israeli firms have since relocated overseas and continued to carry out internet investment fraud.

SpotOption, which later changed its name to Spot Tech House Ltd., was the largest firm providing trading platforms to binary options companies, with hundreds of affiliated websites using its software, marketing systems and business model, according to its own marketing material. SpotOption brokers, or companies that ran websites, employed thousands of Israelis in sales, marketing, and technology development.

Fraudulent binary options companies ostensibly offered customers worldwide a potentially profitable short-term investment, usually by having them bet on whether a certain stock or commodity would go up or down. But in reality — through rigged trading platforms, refusing to pay out winnings, and other ruses — these companies fleeced the vast majority of customers out of most or all of the money they put in. The fraudulent salespeople routinely concealed where they were located, misrepresented what they were selling, and used false identities, according to law enforcement and testimony from ex-employees.

The class-action lawsuit draws heavily on allegations made by the US Securities and Exchange Commission in its April 2021 lawsuit against SpotOption. It also draws on allegations made against SpotOption in the course of prior prosecutions by the US Justice Department, the SEC and the Commodity Futures Trading Commission against several brokers that used the SpotOption platform, including Yukom Communications, LBinary, and websites owned by Jared Davis.

The class-action lawsuit alleges that SpotOption both masterminded the fraud and rigged the platform used by individual websites. In its preliminary stage, the judge has to decide whether or not to approve the lawsuit. Most class action suits are settled before going to trial.

In his impassioned self-defense, Peter cited numbers even higher than those estimated by his accusers.

“We had five million customers who deposited money in our system. Five million and not a single complaint,” he said.

SpotOption largely operated behind the scenes and it is therefore possible that it received fewer complaints than brokers that interacted directly with customers. Nevertheless, it is alleged to have had significant influence and control over these brokers. Meanwhile, a Cypriot sister company of SpotOption, Spot Capital Markets, owned by Peter’s father, has in fact been the subject of fines or warnings from regulators in Cyprus, Poland, Australia and elsewhere.

“We had more than 500 brands, from Brazil to China to Australia, everywhere across the globe except for the US. We were the best. Do you know how much that is, 500 brands?” said Peter.

The US Securities and Exchange Commission had previously put the number of SpotOption partners at around 300.

The American ‘steamroller’

During his mercurial three-hour testimony, Peter swung wildly between shouting angry epithets and lavishing the plaintiffs’ attorney with endearments like “sweetheart” and “cutie,” and occasionally making self-deprecating jokes.

“My wife, thank God, has six children to raise and I am the seventh child and the most problematic,” he joked when asked about SpotOption shares transferred to her in 2017.

Peter told the court that the years since 2017 have been difficult for him, pointing to the Knesset ban, media reports alleging SpotOption committed fraud, the class-action lawsuit, and, worst of all, the SEC lawsuit.

“It was a heavy trauma, the American steamroller and the media reports. These were like 100-kilo hammers on my head. It was very hard. You see me standing here and I look like a man with self-confidence, a strong Georgian man. But the Americans, they crush you and grind you and grind you.”

Peter also lashed out angrily against the SEC for the high sum of the judgment.

“Doesn’t that fine show how stupid the Americans are? And how mentally unstable? The Americans just threw out that number. Where did they get it from?”

“The Americans are liars,” he added. “Liars is not… they’re the biggest mafia in the world.”

Peter’s relationship with American law enforcement had not always been so adversarial, he testified, claiming he provided the SEC with information that led to the surprise September 2017 arrest of Lee Elbaz, the CEO of Yukom Communications, one of SpotOption’s bigger clients.

Yukom Communications had operated the websites BigOption.com and BinaryBook.com using SpotOption’s software and other tools provided by the company. Elbaz went on trial in July 2019, and was convicted and sentenced later that year to 22 years in prison for conspiring to defraud investors out of $145 million.

“The SEC in the United States was in contact with us via the Israel Securities Authority (ISA). The ISA asked us for material. We cooperated with them from day one. The owners of the company Lee Elbaz ran didn’t know we were cooperating because if they had Lee Elbaz would not have traveled to America,” Peter testified.

Peter also pooh-poohed the SEC allegations, saying they were merely “administrative.”

“It’s an administrative lawsuit. If the Americans really thought we had done something wrong they would have brought criminal charges like they did against Lee Elbaz,” he said.

Aisha Johnson, a spokesperson for the SEC, declined to comment on Peter’s remarks, but sent The Times of Israel an affidavit explaining the judgment amount, noting that “the SEC has only civil enforcement authority; other U.S. agencies have jurisdiction over criminal enforcement.”

Civil charges brought against Peter resulted in an award of $13.3 in penalties and approximately $74.3 million in returned profit plus interest, as well as “injunctive remedies,” she said. SpotOption was fined $66.2 million and also ordered to give back $74.3 million in profits and interest.

Making money from customer losses

Among the accusations against SpotOption is that it made money when investors lost, without clients being aware of that fact. The arrangement results in a conflict of interest that can harm consumers, according to regulators.

Peter defended the practice at some points in his testimony and at others repudiated it.

“Did we earn money when the customer lost? Yes! That was the business. It’s not shameful, it’s the business! When a person comes along and wants to earn 80 percent in an hour he takes the risk that he can lose,” he said.

But at another point, Peter said he had actually been uncomfortable with this business model.

“The idea that I make money when the customer loses — the entire leveraged trading world operates this way. But I didn’t really like it. There is a conflict of interest. I didn’t like it,” he said.

Peter said that when the Knesset outlawed binary options in late 2017 he could have opened a company that sold forex investments — bets on global currency moves, which remained legal — but decided not to.

“I could have continued to work in forex. It was disgusting to me. I did not want to work in this anymore. I threw the software in the garbage, software that is worth millions, Your Honor. I swear to you, I said I will not even sell this.”

‘Not my slide deck’

One of the plaintiffs’ key pieces of evidence was a slide deck that they claimed had been seized from SpotOption’s Ramat Gan offices by the FBI. The slide deck had been presented as evidence at the 2019 trial of Lee Elbaz, Cassouto said.

The slide deck instructs binary options sales agents in great detail, and offers tips on how to prevent investors from withdrawing their money. Peter repeatedly insisted that the slide deck did not originate with SpotOption.

“That’s something that Lee Elbaz gave the FBI,” he said. “Lee Elbaz would tell the Americans anything to save her butt and cast the blame on us.”

Peter acknowledged that some of the content in the slide deck was objectionable, but proposed the theory that Lee Elbaz had fabricated the content to shift the blame onto SpotOption.

“I can’t confirm that this slideshow came from my company, I did not write it, I never read it and it’s not connected to me. You are trying to connect me to things that have nothing to do with me,” he shouted.

In response to a Times of Israel query as to the origins of the slide deck, the SEC responded: “The SEC did not prosecute the Lee Elbaz case.  We refer you to the Department of Justice on that case.”

The Times of Israel had not received a response from the US Department of Justice prior to publication.

SpotOption, Peter insisted, had nothing to do with the end customers.

“We were a technology company par excellence.”

A ‘stormy’ life

Throughout his testimony, Peter shared a great deal of autobiographical information, often unbidden, with the court.

He said he had moved to Israel at the age of two from the Soviet Republic of Georgia, and in addition to Hebrew, speaks Georgian and a little Russian. He said he grew up in Kfar Shalem, a working-class neighborhood of Tel Aviv, where he exhibited business acumen at an early age, despite spending a lot of time on the “streets.”

Peter followed in his father’s footsteps and opened a money service business, exchanging one country’s currency for another. At the age of 22, he said, he had a turnover of NIS 1 billion ($282 million). His brother Boris was murdered in a July 1997 robbery by a group of foreign workers from Colombia.

“I grew up in Kfar Shalem. At a young age I was shot at. They murdered my brother. My life has been stormy all along,” he told the court.

“In business wherever I go, whatever I do, with the help of God I succeed big-time. If I had had the privilege to study in a university, today I might be the CEO of the biggest company.”

Peter attributed some of his family’s setbacks to the fact that they come from the Caucasian country of Georgia.

“My father was a history teacher in Georgia; in Israel he became a currency changer. My mother was the best math teacher in Tel Aviv but no one would give her work. They turned her away everywhere, just because her name was Patarkazishvili.”

“But I have no complaints,” he added a moment later.

Working hard and building empires

Peter attributed SpotOption’s success to his own prodigious energy and work ethic.

“I am creative, I am a doer. One of the reasons I like to work hard and build empires is to help others. Truly. During the time of SpotOption maybe I earned 60, 70 million shekels ($16-19m) but I donated more than 15-20 million shekels ($4-$5m). I really like to work for things.”

Peter revealed to the court that he founded a charity for autistic children and youth called Yad Layeled Hameyuhad (Lend a Hand to a Special Child) whose flagship program is known as Gdolim Bemadim (Grown Up in Uniform). But his name does not appear on the paperwork of this charity, he said.

He said he had given the charity NIS 10 million ($2.7 million) over the years.

“This is the biggest startup that I have established, thank God. And it’s not written anywhere, you won’t see my name or how much I donated. You won’t see my name anywhere in connection to this nonprofit. That was one of my conditions,” he said.

In fact, SpotOption does appear in the charity registry as one of the organization’s donors, along with the Jewish National Fund, the Jewish Agency, Rothstein Real Estate, and Friends of Lubavitch of Florida, Inc., among others.

“My wife is also the chairperson of the charity. It’s been ten years. We established the first unit in Eilat in 2012. Today there are 1,000 soldiers, blessed be God. Thanks to SpotOption, autistic young people are serving in the army, Your Honor.”

The charity has given rise to many occasions in which Peter has met and been photographed with prominent Israeli politicians, including the prime minister.

Judge encourages a compromise

At the end of Peter’s testimony, Judge Hadas Ovadia declared the evidentiary stage of the proceedings complete. She said she would need to review the evidence in order to decide whether or not to approve the next stage of the class action suit, but encouraged the parties to reach a compromise on their own in order to lighten the load on Israel’s court system.

“It’s a long road to approval of the lawsuit,” Ovadia told the plaintiffs, “and your chances are not good,” she said, referring to the fact that most initial requests for class action lawsuits in Israel are rejected.

“What sum of money do you think is proportionate and reasonable? A sum that will have a symbolic or deterrent effect?” she asked.

“She wants to take all my money,” Peter muttered under his breath.

Cassouto said that despite the fact that he estimated the total damage at NIS 500 million, he would accept NIS 20 million ($5.4 million), which would be used to compensate as many alleged victims as could be found, with any remaining money used to fund an as-yet to be determined nonprofit organization that benefits consumers. Peter’s lawyers immediately rejected the proposal.

In the coming weeks the sides will submit summaries of their arguments to the court, then either await a decision from the judge on whether the case can proceed, or decide to settle.