As chief investment officer for BlueStar Global Investors, New Yorker Steven Schoenfeld’s mission is to sell investors on the Israeli economy.
Schoenfeld founded BlueStar five years ago on the premise that there is a solid fundamental and empirical case for investing in the Israeli economy, as opposed to the diaspora’s traditional approach of just giving charity. So far, many individuals and about a dozen Jewish federations have invested in two US-listed Exchange-Traded Funds (ETFs) that track BlueStar’s indexes of publicly-traded Israeli companies, the NYSE-listed ISRA Israel ETF and the Nasdaq-listed ITEQ Israel Tech ETF. Collectively, says Schoenfeld, Jewish communal organizations and Jewish-affiliated foundations in the United States control about $50 billion in assets. As the initial investments perform successfully, he believes these two ETFs will gain more allocations from the Jewish community, and they are beginning to attract interest from investors from outside the Jewish community as well.
But there is a worrying, unchallenged phenomenon in the Israel financial world that gives Schoenfeld pause and makes his job harder, he says: “The fact that a shady and probably illegal industry exists in Israel as a an open secret is a huge contingent liability for Israel’s reputation.”
Schoenfeld is referring to Israel’s binary options and forex industries, whose fraudulent activity The Times of Israel has been exposing and detailing in a series of articles in recent weeks, beginning with an article entitled “The wolves of Tel Aviv.” Thousands of people work in the fraudulent industry here — including many immigrants and Israeli Arabs — duping and stealing from clients the world over.
Cumulatively, the Israeli binary options industry is estimated to turn over hundreds of millions of dollars a year, if not billions. A large portion of the industry engages in deceptive and fraudulent practices, from lying about their names and locations to allegedly rigging the trading platforms to refusing to allow customers to withdraw their money under any circumstances.
Schoenfeld says that the streams of complaints by individuals in Europe, North America and beyond who say they have been ripped off by these companies, and the tracing of those responsible back to Israel, sully Israel’s image.
“If it is allowed to continue it will play directly into the hands of the wide cross-section of Israel-haters, whether it’s the BDS movement or the Palestinian anti-Israel orchestrated efforts or the UN, and do enormous damage to everything Israel has achieved.”
Schoenfeld adds that if Israel does not shut down the fraudulent forex and binary options industries soon, there could be other unforeseen consequences.
“For example, the State of Israel sells sovereign bonds and also Israel Bonds to public pension funds and to governments. It’s a very valuable thing that states and municipalities and national governments buy the debt of Israel. But if the citizens of those countries or provinces or states are being hurt by binary options and forex, again, that could hurt Israel’s reputation and it could affect Israel’s ability to place its debt. You just don’t know what the consequences could be — but why would Israel take this risk?”
Schoenfeld also questions the seeming lack of motivation of Israeli politicians and law enforcement to shut down the fraudulent binary options and forex industries.
“Why let this continue? What for? For the sake of a few wealthy businessmen who are making a killing in an unethical way? It’s not worth it.”
An ‘appalling’ industry
Shortly after The Times of Israel published its first article on the binary options industry, Matthew Salter, a former portfolio manager for the Bank of Israel, contacted this news site to offer the perspective of CFA charterholders in Israel, whom he represents.
‘There is nothing about the Israeli binary options industry that suggests to me it should remain operating’
Salter heads the Israel Society of Investment Professionals, a group of 50 investment professionals who have obtained the prestigious Chartered Financial Analyst (CFA) certification, a rigorous international credential for investment advisers with a strong ethical component.
“There is nothing about the Israeli binary options industry that suggests to me it should remain operating,” he says. “What it does is completely against what we CFA charterholders believe.”
Salter says Israel’s legitimate investment community employs thousands of people who are “very educated, sensible and professional.” He says that what they have in common is that they put the investor and his or her needs first.
“The most important person in the investment industry is the investor. Everything you do has to be for the benefit of the investor — ethics, regulation, where you put the investment. That is completely the opposite of what is happening in the binary options industry,” he charges, citing common industry practices such as lying to investors, not using one’s real name, allegedly rigging the trading platform and encouraging investors to put in more money than they can afford.
“It’s appalling,” he adds. “We get very upset about this. When this fraud makes headlines, it tarnishes the whole industry.”
What will it take?
As for Schoenfeld, he is hopeful the Israeli government and law enforcement will wake up to the massive binary options and forex fraud and shut it down before it explodes into an international crisis.
Schoenfeld says he is baffled by the fact that the Foreign Ministry has been trying assiduously to build ties with Gulf States and Saudi Arabia, yet the government allows thousands of Israeli Jews and Arabs to be employed ripping off people in those countries.
He asks what it will require for the government to wake up.
“What is it going to take? Is it going to take a much bigger scandal or highly-publicized losses by individuals in countries friendly to Israel? For example, where the prime minister of Canada or the president of France puts it on the agenda in a meeting with the Israeli prime minister? Or will Bank of Israel Governor Karnit Flug be taken by surprise at an IMF meeting when the Governor of the Bank of Canada puts this on the agenda?”
“Or will Stanley Fischer – in his new job at the Fed – find out about this from the US SEC or CFTC and call Karnit Flug–will it have to get on the agenda of the US Federal Reserve Bank or the Treasury Department?”
These worst case scenarios may seem far-fetched, says Schoenfeld, but they are well within the realm of possibilities.
That’s why it is best for Israel to shut down the fraudulent industry immediately, while the country’s economy can still absorb the blow, he says.
“It is unambiguously in Israel’s interest to take immediate and forceful and credible steps to shut this down. It’s wrong and it goes against everything the country stands for.”
We invite others who have worked in the industry, or who have been defrauded by it, to contact us. You can do so by email to: email@example.com