The United States Department of Justice has filed charges against two Israelis suspected of online investment fraud, one of whom, Austin Smith, has pleaded guilty. Smith is the owner of a company that markets money recovery services to victims of binary options fraud.
On Wednesday, the United States Department of Justice updated its website devoted to the case of alleged binary options fraudster Lee Elbaz to reflect the fact that two additional employees at Elbaz’s company had been charged, bringing the total number of defendants in this and related cases to six.
The two new defendants are Austin Smith, who allegedly used the alias “John Ried,” and Yair Hadar, who allegedly used the name “Steven Gold,” when talking on the phone to investors.
Smith was arraigned on Thursday and charged with one count of conspiracy to commit wire fraud. He pleaded guilty, was released to his parents’ custody on $300,000 bail, and is scheduled to be sentenced on September 3, 2019.
Hadar has been charged with one count of conspiracy to commit wire fraud and will be arraigned March 21, 2019, according to the Department of Justice website.
Both men allegedly defrauded investors through the websites BigOption and BinaryBook. BigOption and BinaryBook were two of hundreds of binary options websites that operated from Israel between the years 2008-2018, in an industrial-scale scam that bilked billions of dollars out of millions of investors worldwide.
Smith is also the owner of a company called Wealth Recovery International that offers to recover money for victims of binary options.
In a profile published by the Jewish Telegraphic Agency in April 2017, Smith made no secret of his past involvement in the binary options industry, but claimed to have left fraudulent activity behind and to be working to help victims recover their money. He claimed to have had a change of heart after a religious epiphany.
The Justice Department’s charges against Smith largely pertain to the period from August 2015 till January 2016, when he was employed in the binary options industry. But the Justice Department also accused Smith of, on at least one occasion, earning a hefty commission from a client he had previously personally participated in defrauding.
According to a court filing, Smith obtained $125,000 in fees and commissions for the services of Wealth Recovery International from at least one client whom he had directly defrauded when he was an employee at BinaryBook. Smith did not disclose to this client that he was one of the people who had earlier defrauded him.
Wealth Recovery International’s in-house attorney Tammi Hamm told The Times of Israel that Smith has never hidden the fact that he worked in binary options and that from her perspective nothing has changed since his arrest and guilty plea, and Wealth Recovery International will continue to operate as before.
She claimed that Wealth Recovery International has recovered $8.5 million for clients and that a large percentage of the company’s clients are satisfied.
According to the charge sheet against him, prior to starting Wealth Recovery International, Smith allegedly worked at a Tel Aviv company called Numaris Communications, which coordinated and shared resources with Yukom Communications in Caesarea, where Elbaz and other defendants worked.
According to the charge sheet, Smith and his co-conspirators allegedly engaged in wire fraud:
“Austin Smith and others known and unknown,” the charge sheets reads, “did knowingly combine, conspire, confederate and agree with each other and others, both known and unknown, to commit offenses against the United States, to wit, wire fraud, that is knowingly and with intent to defraud, having devised and intended to devise, a scheme and artifice to defraud and to obtain money and property by means of materially false and fraudulent pretenses, representations, promises and knowing concealment concerning a material fact or matter.”
The charge sheet alleges that the purpose of the conspiracy was “to obtain the maximum deposit from investors and to take steps to ensure that investors lost money in their account — thereby making money for themselves and their brands in the process.”
Hadar was arrested in January as he attempted to board a flight back to Israel at JFK airport, according to court filings. He was allegedly a sales agent for BigOption from November 2014 until at least August 2016.
Other former employees of Numaris Communications and Yukom Communications who have been charged include Liora Welles, Shira Uzan, and Lissa Mel, all of whom have pleaded guilty and are under house arrest in the United States awaiting sentencing.
Elbaz, the former CEO of Yukom Communcations, is under house arrest awaiting trial.
Elbaz is represented by attorney Barry J. Pollack, who is also the attorney for Wikileaks founder Julian Assange.
A binary option is an option contract whose payoff depends on the price of another asset, like gold, wheat, or Apple stocks. If the holder of the option guesses correctly about the direction that the price has moved at the time of expiry, he earns a predetermined amount of money, and if not he loses 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 investors and disappeared with all or almost all of their money.
At its peak, the Israeli industry featured hundreds of companies, employing thousands of Israelis, duping vast numbers of victims worldwide out of billions of dollars.
The Knesset outlawed the binary options industry in October 2017, in part as a result of enormous pressure faced by representatives of the Israel Securities Authority at meetings of the International Organization of Securities Commissions (IOSCO). However, since the ban, Israeli law enforcement has indicted only three alleged binary options fraudsters.