Israeli securities regulator questioned by European colleagues on binary options fraud

At meeting of 27 European countries, officials tell ISA chairman Shmuel Hauser they are ‘concerned’ about fraudulent Israeli industry, ask him what he’s doing about it

Simona Weinglass is an investigative reporter at The Times of Israel.

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

Israel Securities Authority Chairman Shmuel Hauser was asked to explain what Israel is doing to tackle binary options fraud last week, when he met with 27 European chief securities regulators as part of the European Regional Committee meeting of IOSCO (the International Committee of Securities Commissions) in Paris.

The largely fraudulent industry has been allowed to flourish in Israel for almost a decade, and has received considerable (Times of Israel-led) media exposure in the past year, but Israeli law enforcement has taken almost no action to shut it down.

Hauser told the meeting he was preparing legislation to tackle the plague of fraud, and cooperating with other arms of Israeli law enforcement.

At the January 27 meeting, the chairman of the European Regional Committee, Jean-Paul Servais, who is also the chairman of Belgium’s Financial Services and Markets Authority, expressed “the concern of all European countries at the involvement of Israelis and Israeli firms in the sale and distribution of binary options to the European public,” according to a press release issued by the Israel Securities Authority on Thursday.

Illustrative photo: (flik47 / iStock photo / Getty Images)
Illustrative photo: (flik47 / iStock photo / Getty Images)

Servais noted that over 90 percent of investors lose their money to such companies, and that this activity is often accompanied by deception and fraud against investors, and must be stopped.

Servais also mentioned that the Financial Services and Markets Authority (FSMA) of Belgium has banned the sale of binary options since last August and that France has also prohibited the advertising of binary options to its residents.

A spokesman for Belgium’s FSMA confirmed to The Times of Israel that Servais asked Hauser questions about binary options during the meeting.

Steven Maijoor, who chairs the European Securities and Markets Authority (ESMA), told the meeting that binary options should be banned in all of Europe, according to the ISA’s statement. The Times of Israel asked ESMA to confirm this but did not receive a response in time for publication.

The Times of Israel has been exposing Israel’s largely fraudulent binary options industry in a series of articles since last 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. Thousands of Israelis work in the field, which is estimated to have fleeced billions of dollars from victims all over the world in the past decade.

The Prime Minister’s Office in October condemned the industry’s “unscrupulous practices” and called for the entire industry to be outlawed worldwide.

Responding to The Times of Israel’s reporting on the widely fraudulent industry, on January 2, the Knesset’s State Control Committee held a hearing on the government’s failure to shut down binary options fraud. The committee chair, MK Karin Elharar (Yesh Atid), demanded that the police begin enforcement activity against fraudulent binary options firms in the next month and that the Israel Securities Authority urgently advance legislation to shut down the entire industry.

Israel Police ignored Elharar’s invitation to the meeting and did not attend. A follow-up hearing is tentatively scheduled for February 22.

MK Karin Elharar chairs a meeting of the Knesset State Control Committee on binary options fraud, January 2, 2017 (Luke Tress / Times of Israel)
MK Karin Elharar (center) chairs a meeting of the Knesset State Control Committee on binary options fraud, January 2, 2017 (Luke Tress/Times of Israel)

Hauser told the 27 European securities chiefs at the meeting that he shared their concern about the fraudulent binary options industry and that the ISA was drafting legislation that would expand its authority so that it could shut down companies that solicit customers abroad. At present, he said, the ISA only has jurisdiction over binary options companies that ply their investments to Israelis.

Hauser also told his colleagues he is cooperating with other law enforcement bodies in Israel, including the attorney general, police, tax authority and anti-money laundering authority to uproot binary options fraud.

According to the ISA, the other regulators thanked Hauser and expressed hope that the legislation to expand his authority would be passed as soon as possible.

A Facebook ad for an Israel-based binary options firm posted April 19, 2016 (Screenshot)
A Facebook ad for an Israel-based binary options firm posted April 19, 2016 (Screenshot)

A spokeswoman for the ISA told The Times of Israel she believed the legislation would be ready in time for the Knesset State Control Committee’s second hearing on binary options fraud on February 22.

But a lawyer with knowledge of Israel’s lobbying industry told The Times of Israel that in his view, passage of the law will not be smooth sailing.

“The binary options industry has spent a lot of money on lobbyists. They have a lot of sway with Knesset members and will do everything in their power to delay or prevent passage of such a law.”

‘High-quality’ and ‘professional’

Israel has been a member of the IOSCO European Regional Committee since 2012, when ISA chairman Shmuel Hauser asked to join the group despite the fact that Israel is located in the Middle East, not Europe.

Israel had previously been a member of IOSCO’s Africa/Middle East Regional Committee (AMERC) but could not act as a full-fledged member of that committee or attend meetings because Israel does not have diplomatic countries with many of that committee’s members.

At the time of Israel’s 2012 acceptance into the European Regional Committee, Hauser expressed pride in the decision.

“This is an honorable accomplishment for Israeli regulation,” Hauser said, according to a report by Ynet. “This decision reflects the European recognition of Israeli regulation as professional and of high quality, meeting the highest international standards.”

“This is an important step which brings us closer to mutual recognition of the quality of regulation in securities laws between Israel and countries of the European bloc,” Hauser added, while another spokesperson for the ISA reportedly said that membership in the European Regional Committee would make it easier for Israeli companies to raise capital abroad.

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