For Israelis who work in binary options, there may be a lot to ponder this Yom Kippur as arrests begin and the Israel Securities Authority declares that a crackdown on fraudulent firms is a “national priority.”
Israel’s Tax Authority announced on Monday that two men, Haim Toledano and Saar Pilosof, have been arrested on suspicion of hiding millions of shekels from tax authorities through the use of offshore shell companies.
Toledano and Pilosof were arrested around two weeks ago but their identities had been an under a court-imposed gag order which was lifted on Monday.
In Israel’s corporate registry, Toledano is the director of Toyga Media Ltd., formerly known as UFX Ltd., which is housed in a large building on Tel Aviv’s Hamasger Street. Hundreds of employees there call customers abroad on behalf of the UFX and Ubinary trading brands. UFX offers forex trading while Ubinary offers binary options. UFX and Ubinary have been the subject of investor warnings from regulators in Canada and Australia, respectively.
On April 12 of this year, the Nova Scotia Securities Commission wrote that they are “cautioning investors about UFX.com, ufxmarkets.com and Reliantco, which are offering online trading and binary options to Nova Scotians. The Commission is alerting investors that UFX.com, ufxmarkets.com and Reliantco are not registered to sell securities in Nova Scotia. At least one Nova Scotian responded to a Facebook advertisement, used a credit card, and lost a significant sum of money.”
Similar warnings against UFX.com have been issued by other Canadian provinces.
The Australian Securities Commission has issued a warning about Ubinary.com, stating that “ASIC advises this company could be involved in a scam. Do not deal with this business as it is unlicensed in Australia. The business… has made unsolicited calls or sent emails about investing, financial advice, credit or loans and does not hold a current Australian Financial Services (AFS) licence or an Australian Credit licence from ASIC.”
The Times of Israel is not aware of any proof that Toyga or UFX have engaged in unlawful activity within Israel.
Toledano and Pilosof were released on bail of NIS 500,000 ($132,000) each, with third-party guarantees of NIS 250,000, and are not allowed to leave the country, according to the Tax Authority. The suspects’ homes and offices were searched, and authorities found a safe with about NIS 600,000 in cash and confiscated computers and documents, a statement from the Tax Authority said.
The two are suspected of registering a number of companies in the offshore tax havens of Anguilla, Belize and the British Virgin Islands in order to hide ownership and avoid paying Israeli taxes.
The website of ParagonEx, which is described on the UFX website as the company that provides its technology platform, and which Pilosof’s LinkedIn profile shows him to be the founder of, shows an address for the company in the Isle of Man, another well-known tax haven.
The pair allegedly failed to declare ownership of the companies and bank accounts they held abroad, as well as millions of shekels worth of profits originating outside of Israel from 2012-2014.
The Tax Authority stated that the arrests occurred after Toledano and Pilosof’s names appeared in the Panama Papers, a massive leak earlier this year of information relating to tens of thousands of offshore companies, including the names of their beneficiaries.
Dozens of other Israelis are named in the Panama Papers as being linked to ParagonEx Ltd., the British Virgin Islands offshore entity, as well as to UFX Markets Global Inc. (registered in British Anguilla).
Crackdown on fraudulent firms
The Times of Israel has in recent months been detailing massive fraud by Israeli binary options firms, beginning in March with an article entitled “The Wolves of Tel Aviv.” While not all companies that offer binary options are fraudulent, those that are purport to be guiding their customers in making lucrative short-term investments but are in fact using various ruses, including misrepresentation, allegedly manipulating rigged trading platforms, and outright refusal to return deposits, to steal their clients’ money. Thousands of Israelis work in the binary options industry, much of which is fraudulent, with an annual turnover estimated in the hundreds of millions of dollars, if not billions.
All Israeli binary options firms are now banned by the Israel Securities Authority from targeting Israelis, but the firms remain free to seek clients abroad. The Israel Securities Authority has rejected the license requests of many forex companies as well. The US has banned overseas binary options firms from targeting its citizens, and numerous countries, including the US, Canada and France, are investigating Israel-based binary options fraud on behalf of their citizens who have been cheated. In August, Belgium became the first European country to ban the industry.
A spokesperson for Israel’s Tax Authority told The Times of Israel this week that other companies implicated in the Panama Papers are under investigation and more arrests are expected. These arrests are for alleged tax evasion and not alleged fraudulent practices on the part of binary options or forex firms. The spokeswoman would not comment on whether other binary options-related arrests were imminent. Hundreds of Israeli forex and binary options shareholders and beneficiaries are named in the Panama Papers.
The arrest of Toledano and Pilosof for alleged tax evasion follows on the heels of the September 22 arrests by the Israel Securities Authority of three ex-sales brokers for the now-defunct online trading firm Utrade. Utrade was a forex company whose brokers were suspected of deceiving customers. The company’s owner, Aviv Talmor, also operated several binary options brands targeting customers abroad.
Asked whether the arrests set a precedent whereby not only the owners or management but salespeople for deceptive binary options and forex firms can be arrested, a spokeswoman for the Israel Securities Authority declined to comment, saying: “We are not allowed to speak about our investigations.”
However, she said, the ISA is seeking enforcement action against the fraudulent binary options industry and is presently in consultations with the police, the Justice Ministry and the attorney general on to how to bring this about.
In the meantime, victims who feel they have been defrauded by a company operating from Israel should approach the regulator in their own country, which can in turn ask for the Israeli regulator to investigate their case, the ISA said.
“We invite and encourage anyone who sees themselves as a victim of binary options to go to their local regulator, who will approach us,” said Itzik Shurki, director of the Stock Exchange and Trading Platforms Supervision Department at the Israel Securities Authority.
“We are happy to help, we want to help, and we encourage victims to come forward.”