A sting operation by a private intelligence firm has uncovered allegations that SpotOption, a company at the heart of Israel’s outlawed binary options industry, rigged its trading platform to take money from consumers who thought they were trading on capital markets.
The allegations were made by an industry insider who claimed in a recording to have been an executive at a firm set up by SpotOption, shining a rare light on an industry rife with fraud and shrouded in secrecy.
The recording was submitted to Tel Aviv District Court on June 16 as part of a class-action lawsuit against SpotOption filed by the Israeli consumer advocacy organization Civic Trust on behalf of victims around the world who were allegedly defrauded by SpotOption-run websites.
The footage, which The Times of Israel has obtained, is dated March 17, 2021 and shows a man, whose face is blurred, talking to two detectives, who are out of view. The man tells the two women that the SpotOption platform allowed operators to game the system and make investors lose.
“You have electronic switches and you can play with the numbers. You press a switch and play with the number,” he says.
The footage was secretly recorded by Israeli private intelligence firm Dionaea, which claims to be staffed by former leaders of the Israeli army and Mossad. According to a source close to the lawsuit, the man in the video is a former senior executive at one of the first brokerages, or websites, set up by SpotOption.
The recording is unusual, the source said, because most operatives in this industry — which consisted of over 100 companies and thousands of operatives at its height — have adhered to a code of silence regarding the industry’s allegedly criminal practices.
“The binary options industry is a closed and highly secretive one, in which traders go to great lengths to hide their practices and use pseudonyms to conceal their identities,” the source added.
“Although this field has been considered impossible to crack for years, Dionaea managed to penetrate the heart of the closed trade for the first time and obtain firsthand testimony from a senior manager who worked with SpotOption, exposing the fraudulent system used in this industry,” the source said.
A class-action lawsuit
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.
Neither SpotOption nor its former executives responded to The Times of Israel’s request for comment.
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.
As the Times of Israel has reported, dozens of alleged victims of online investment fraud have filed civil lawsuits in Israel against the people who allegedly scammed them but Israeli law enforcement has done almost nothing to combat or punish the alleged fraudsters.
On June 16, Israel’s Consumer Trust organization filed a class-action lawsuit in Tel Aviv on behalf of investors anywhere in the world who lost money to any website operated by Ramat-Gan-based SpotOption.
The attorney who filed the class-action lawsuit, David Itshak of the Cassouto and Co. law firm, noted that everyone in the class described in the lawsuit is automatically represented in the plaintiffs’ complaint unless they opt out.
Since SpotOption claimed in its marketing material to have over 300 partners running websites, and since some of these websites had tens of thousands of investors, the number of people represented by the lawsuit could number well over a million.
The lawsuit describes SpotOption as carrying out “systematic fraud, unprecedented in scope, of investors in Israel and around the world who lost massive sums trading binary options on a platform that was developed, created and marketed by the defendant SpotOption as well as its owners and managers. The purpose of this request to approve [a class-action lawsuit] is to bring justice and succor to all the victims, many of whom are from weak and vulnerable populations, and whose money and property the defendants stole, sometimes to the point of losing all their assets.”
Itshak told The Times of Israel that he and his colleagues had been preparing a class action lawsuit against SpotOption for several months but lacked sufficient evidence. He said two things changed that: An April 2021 lawsuit filed by the US Securities and Exchange Commission against SpotOption, alleging that it defrauded US investors out of over $100 million, and the Dionaea footage.
“We were busy with this for several months before we filed the request to the court in June to accept a class action lawsuit,” Itshak said. “We knew that one of the purposes of the SpotOption platform was to allow the brands to cheat their customers. Everyone spoke about this, it was in the air, but that’s not enough to go to court.”
The class-action lawsuit draws heavily on allegations made by the SEC in its April 2021 lawsuit against SpotOption. It also draws on allegations made against SpotOption in the course of prior prosecutions by the United States Justice Department, the SEC and 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, as have previous complaints by the US Department of Justice, SEC and CFTC, that SpotOption both masterminded the fraud and rigged the platform used by individual websites.
SpotOption has in the past denied that its platform was rigged.
Moshe Avrahami, the CFO of SpotOption, told a Knesset panel on August 7, 2017 that he was affronted by the idea that the company would cheat consumers.
“They are saying that binary options technology companies allow people to cheat traders with a secret button. I know of no such thing. Our software is fair, and trustworthy. ” he said.
‘An important lawsuit’
Itshak told The Times of Israel that he thinks the class-action suit is important because rather than target individual brokers or brokerages using SpotOption’s platform to allegedly bilk investors, it is going after the company that made the platform and was thus one of the main actors behind the alleged binary options con.
“Until now all the lawsuits have been against individual brands. No one actually sued SpotOption, which developed the platform for about 80 percent of the brokers. That is our innovation,” he said.
The lead plaintiff in the case is an American named David Burroughs who lost money to a SpotOption brand known as AAOption, which is thought to have been run from Israel.
The lawsuit alleges that SpotOption formed “white label partnerships” with various business associates and then provided them with everything they needed to open a binary options brokerage. In other words, the business model, software and techniques all belonged to SpotOption.
SpotOption designed websites, provided brokers with a content management system and client relations software, as well as instruction in how to set up a call center and speak to clients, the lawsuit alleges. The partners then put their own brand name on the website and shared part of their monthly revenues with SpotOption.
Most of these white-label partners were in Israel, but some operated from the United States, Russia, Bulgaria and elsewhere.
In the video footage obtained by Dionaea on behalf of the plaintiffs, the man they secretly recorded claims that SpotOption took a cut of each website’s revenues. His discussion of SpotOption begins about 37 seconds into the video.
“SpotOption is what is called a label platform,” he says. “The companies that sell the services are called ‘white labels.’ So whoever works for a white label and actually sells to the end customer makes X money, and so does the platform provider. Of course the bosses make the most money. “
The man also insists that SpotOption could manipulate the outcomes of trades.
“ I’ll give you an example,” he tells the two detectives.
“I bet that gold will rise in value, okay? I say gold will rise by today. How does it work? If it went up by 0.01, I won and I’m getting a 75 percent return and that’s a gain. I put in $1,000; I made $750. But if I lost, I lost $1,000. Now if it’s close to closing time, which means the numbers are close, then he can make some kind of tweak that’s going to create some kind of downward spike.”
“Who?” one of the detectives asks.
“The system itself, the platform, whoever controls it,” he replies.
“This Spot company?” she asks.
“Theoretically whoever has the technology can do it, yes,” he replies.
“And the person sitting in front of his computer doesn’t see it?”
“Not him, not whoever sold him the option. There’s no way of knowing. It appears so much part of the system that it’s impossible to see,” says the man.
In the video, the man also describes workers drinking to overcome moral qualms about cheating investors.
“There was a lot of alcohol in the offices,” he says. “There are all kinds of people. There are people who can’t do it at all. And there are people who do it until they can’t, and people who do it and they don’t care. There are all sorts of human beings,” he elaborates, referring to employees’ ability to stomach the act of allegedly defrauding investors.
“And you managed people like that?” asks the detective.
“Correct,” he replies.
Raking in millions
The SEC on April 16 charged SpotOption, as well as founder Malhaz Pinhas Patarkazishvili, also known as Pini Peter, and Ran Amiran, with defrauding US investors out of over $100 million. According to the SEC, SpotOption targeted thousands of US victims, including retirees.
According to the SEC, Ran Amiran was SpotOption’s president and director and owned approximately 2.5% of the company’s shares.
“Many of those investors lost most of their money, including, in some cases, hundreds of thousands of dollars meant for retirement. SpotOption and its Partners, on the other hand, raked in millions in profits,” the SEC complaint specified.
SpotOption is largely responsible for popularizing the financial product known as binary options, which is a legitimate financial instrument in theory. In practice, however, most binary options sold to retail customers in recent years have allegedly been fraudulent. SpotOption marketed “binary options” as a cross between forex trading and gambling.
“Gaming operators have taken a financial games approach, and turned the option into market betting, while forex operators have sold the option as a simple and fun stepping stone into the more complex foreign exchange trading. Both industries have taken off with SpotOption’s leading platform, and bridged into the target market of the other,” the company said in a 2011 press release.
Patarkazishvili, an Israeli born in the former Soviet Republic of Georgia, founded SpotOption in 2009, shortly after buying a Kazakh gambling machine company known as Vulkan KSI.
SpotOption expanded rapidly, despite the fact that Patarkazishvili did not appear to have any gambling or financial trading background before buying Vulkan KSI. He had previously worked at a money-changing store, prior to a 2005 conviction on money laundering charges, and had then headed an Israeli telecommunications company that did business in Kazakhstan.
Patarkazishvil is a major donor to the Chabad movement, and the donations have been parlayed into access to prominent Israelis.
He has been photographed at charity events with Netanyahu, Defense Minister Benny Gantz, Justice Minister Gideon Sa’ar, Tel Aviv Mayor Ron Huldai and others.
The Israeli government secretively gave taxpayer money to SpotOption to help it expand abroad, The Times of Israel revealed in 2017.
According to David Itshak, it could take several months for the Tel Aviv District Court to decide whether or not to approve the class-action lawsuit against SpotOption. Most class action lawsuits are settled out of court, but should the case go to trial, it could take several years until an Israeli court delivers its verdict. Should the court rule on behalf of the plaintiffs, Itsik said there are several legal mechanisms whereby the defendants’ assets in Israel and abroad could be seized.
The attorneys would then have to issue public notices inviting all members of the class represented in the class-action lawsuit to come forward and receive money in proportion to the amount they lost.
A spokeswoman for the plaintiffs acknowledged to The Times of Israel that this is a long process, but said that the larger purpose of the lawsuit is to expose alleged wrongdoing.
“We want to bring it to the public’s attention, that something is wrong, that a crime and injustice were committed, not just to a few individuals, but to expose the entire scope of it,” she said.
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