AnalysisRamat Gan firm 'a well-oiled machine of fraud and exploitation of customers'

Israeli authorities raid binary options firm, arrest CEO, salespeople

iTrader employees charged with fraud, providing unlicensed investment advice, obstruction of justice; chief regulator has told Times of Israel he aims to shut down entire industry

Simona Weinglass
David Horovitz
A  2016 commercial showing Maccabi Tel Aviv basketball players promoting iTrader (Screenshot YouTube)
A 2016 commercial showing Maccabi Tel Aviv basketball players promoting iTrader (Screenshot YouTube)

In what may be a harbinger of a wider crackdown, the Israel Securities Authority (ISA) on November 8 carried out a highly unusual raid on the Ramat Gan offices of iTrader, a company that offered binary options and forex trading to the Israeli public, arresting seven of its top managers and salespeople.

The ISA accused the seven men of providing investment advice without a license, as well as aggravated fraud, all of which allegedly occurred between May 2013 and May 2016.

Prompted in part by months of reports in The Times of Israel on widespread fraud by Israeli-based binary options firms, the ISA is now vowing to close down the entire industry, and is drafting legislation, backed by the Prime Minister’s Office, with this goal. Tuesday’s raid, marked by the arrests not only of the CEO but also of salespeople, indicated that the belated crackdown on fraudulent firms that have been duping and fleecing victims worldwide for years could extend to the lower-level employees who may have believed themselves unlikely to ever be caught and prosecuted.

iTrader “is essentially a well-oiled machine of fraud and exploitation of customers,” attorney Eran Shacham-Shavit, the deputy counsel of the ISA’s investigations department, told the Tel Aviv Magistrate’s Court.

Speaking at a November 9 hearing for the suspects’ release under restrictive conditions, he added, “Customers did not understand what they were investing in, and believed the falsehoods presented to them by employees of the company, who presented themselves as trading coaches and knew exactly what deceptive things to say to get customers to fork over more money.”

“These employees were motivated by greed and a desire for bonuses at the expense of their customers, hid relevant details from them concerning their accounts, and even when the customers’ losses mounted, the company’s employees, knowingly and under supervision of their managers, exploited the situation,” the ISA official added. “Their entire goal was to feed the well-oiled money machine that led to failed investments, with full knowledge that there was a very great chance their customers would lose their money.”

In common with many of the Israeli binary options firms, iTrader promoted its business by sponsoring a sports franchise, the Maccabi Tel Aviv basketball team. It showcased its business in a commercial starring several members of the Maccabi team.

The seven men arrested by the ISA are Ido Fishman, the company’s chairman and CEO; Daniel Swartz, sales manager at Gal Media Trade Ltd., which operates, and the deputy CEO of another company run by Fishman; Naor Noah, head of retention; and Jonathan Tourjman, team leader. Itzhak Babler, Itam Durab and Maor Jerby, three employees who worked as trading “coaches,” were also arrested.

All seven were released on bail but prohibited from leaving the country for 180 days while the ISA continues to investigate the case.

On June 14, 2016, the ISA had rejected iTrader’s request for a license due to doubts about the company’s probity and integrity. The company was ordered to stop soliciting customers, but it was apparently still operating during this week’s raid.

The ISA alleged on November 9 that in addition to defrauding customers, Fishman, the company’s CEO, obstructed and interfered with the regulator’s criminal investigation into the company.

The Times of Israel has spoken with two Israeli citizens who lost six-figure shekel sums to iTrader: a man who lost over NIS 100,000 ($26,000), and a divorced disabled woman with Parkinson’s disease who lost most of her life savings, over NIS 600,000 ($158,000).

At the November 9 Tel Aviv Magistrate’s Court hearing, a lawyer for Ido Fishman and the other six suspects told the judge, “We were the main sponsors of the Macabbi Tel Aviv basketball team, not a company that operated in the shadows,” adding that during the three years in question the company had thousands of customers but only 10 lawsuits. “In fact we have behaved in a transparent way,” the lawyer said.

An illustrative photo of the Ramat Gan diamond bourse area, where many binary options firms are located, June 23, 2015 (Miriam Alster/Flash90)
An illustrative photo of the Ramat Gan diamond bourse area, where many binary options firms are located, June 23, 2015 (Miriam Alster/Flash90)

Soliciting customers abroad, which solicited Israeli customers, is also closely associated with the brand FMTrader, a binary options broker that continues to solicit customers abroad. The two companies share a Ramat Gan address and have staff members in common.

FMTrader has been the subject of investor warnings by Canada’s Manitoba Securities Commission, Australia’s Securities and Investment Commission and New Zealand’s Financial Markets Authority.

“ASIC advises this company could be involved in a scam,” reads the Australian warning. “Do not deal with this business as it is unlicensed in Australia.”

The Manitoba Securities Commission wrote of FMTrader, “We recently spoke with a Manitoba resident who had invested $28,000 in binary options trades after discovering FMTrader through an ad on social media. This investor was attracted by the promise of ‘risk-free trading,’ and ‘high profits.’ After investing $5,000 in cash and $23,000 via credit cards, the investor was told he couldn’t withdraw any money until he’d placed a minimum $1,000,000 in trades. Based on previous cases involving binary options, it is very unlikely this 24-year-old will be able to recover any of his investment.”

ISA (Israel Securities Authority) chief Shmuel Hauser (Roni Schutzer/FLASH90)
ISA chief Shmuel Hauser (Roni Schutzer/Flash90)

The Times of Israel has been exposing Israel’s fraudulent binary options industry in a series of articles since March, beginning with an article entitled “The Wolves of Tel Aviv,” and has estimated that the industry here numbers over 100 companies, most of which are fraudulent and employ a variety of ruses to steal their clients’ money. These firms lure their victims into making what they are duped into believing will be profitable short-term investments, but in the overwhelming majority of cases the clients wind up losing all or almost all of their money.

The Prime Minister’s Office last month condemned the industry’s “unscrupulous practices” and called for it to be outlawed worldwide.

Last week, ISA chairman Shmuel Hauser told The Times of Israel that consultations have begun on the framing of legislation to bar all Israel-based binary options operations from targeting anybody, anywhere. (Israeli firms are already banned from targeting Israelis.) The consultations have extended to Attorney-General Avichai Mandelblit and to the government, he said.

Once such a law passes, the ISA will presumably have the authority to raid and arrest managers and employees of many additional companies, not just those companies that target Israelis.

“I am deeply troubled” by the fraudulent industry, Hauser said. The aim of the new legislation is “to put an end to the whole story” of binary options operations in and from Israel, he said.

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