US freezes assets of Israel binary options company owner in alleged $16m fraud
Regulator accuses Israeli-American Jason B, Scharf of fleecing at least 8,000 victims; civil complaint also filed against affiliate marketer
Simona Weinglass is an investigative reporter at The Times of Israel.
The US Commodity Futures Trading Commission announced a civil complaint this month against Israeli-American binary options operator Jason B. Scharf, alleging that he and the companies he controls have swindled more than $16 million from at least 8,000 victims, most of them located in the United States.
A federal district court with the Middle District of Florida unsealed the civil CFTC complaint on July 10, alleging that Scharf, who currently lives in Valley Village, California, has defrauded investors through the web site citrades.com and AutoTradingBinary.com. The complaint also named Michael Shah and his company Zilmil, Inc., of Jacksonville, Florida, as defendants.
According to the complaint, Shah was an affiliate marketer for the web site citrades.com, orchestrating advertising campaigns that lured investors to the site.
According to the CFTC complaint, Scharf and the companies he controlled and/or controls — including CIT Investments LLC, a Nevada limited liability corporation; Brevspand EOOD, a Bulgarian business entity; CIT Investments Ltd., a Marshall Islands business entity; CIT Investments Ltd., an Anguillan business entity; and A & J Media Partners, Inc. — “fraudulently solicited customers to open binary options accounts with false claims of outsized profits and ‘guaranteed returns’ trading binary options, bolstered by fake testimonials of purportedly successful customers.”
Scharf allegedly carried out this fraud from at least January 2014 until the present.
The complaint further alleged that once customers deposited money with CITrades, they did not get it back. Instead it was routed through numerous offshore companies and bank accounts and ultimately found its way back to the beneficiaries.
The CFTC accused Shah, the affiliate marketer, of “attracting potential customers through fraudulent ad campaigns to purchase binary options trading systems, and steer interested customers to binary options websites like those operated by Scharf.”
In the past, affiliate marketers, who created fraudulent videos and web sites promoting binary options trading, have not been in the crosshairs of law enforcement, but the CFTC action signals that this situation could be changing. While Shah is American, Israel has a large affiliate marketing industry as well.
James McDonald, the CFTC’s Director of Enforcement, said in a July 12 statement that “this action should send a message to would-be fraudsters that the sort of conduct alleged here will not be tolerated.”
On July 12, 2017, US District Court Judge Brian J. Davis ordered that the assets of Scharf and Shah be frozen. Both men were also prohibited from destroying their records, to which the CFTC now has access.
How affiliate marketers lure victims to binary options
The CFTC complaint contained a detailed description of how affiliate marketers operate.
The CFTC alleged that Shah’s company, Zilmil, developed and sold autotrading binary options systems that don’t actually work.
“Zilmil ‘s autotrading systems do not work as advertised,” read the complaint, “Instead of placing winning trades as promised, Zilmil’s trading systems place trades that result in customer losses, sometimes depleting the customer’s entire account in just a few hours.”
The CFTC quoted an email exchange between Shah and the operator of CITrades in which the operator wrote delightedly about the way in which the autotrading program was fleecing clients: “The autotrader attached to this is doing its job and is doing it great, crushing people like immediately.”
Zilmil’s autotrading systems included millionairemoneymachine.co, 7daymillionaire.co, moneyplatform.net; binaryboom.co and www.binarymachine.co. CItrades was not their only binary options client.
The Times of Israel began exposing the widely fraudulent industry in a March 2016 article entitled “The wolves of Tel Aviv: Israel’s vast, amoral binary options scam exposed.”
Fraudulent Israeli binary options companies ostensibly offer customers worldwide a potentially profitable short-term investment. But in reality — through rigged trading platforms, refusal to pay out, and other ruses — these companies fleece the vast majority of customers of most or all of their money. The fraudulent salespeople routinely conceal where they are located, misrepresent what they are selling and use false identities.
A bill to ban Israel’s binary options industry is currently making its way through the Knesset, having passed a first reading last month. The proposed law would ban all binary options trading, period, and thus put a complete halt to the blight of Israeli binary options firms duping victims all over the world into parting with their money. (It also targets unregulated forex and CFD companies operating from Israel, requiring them to obtain a specific license to operate in any country where they have customers. Many such companies operating from Israel also engage in fraudulent practices.)
The law would give the ISA the authority to impose penalties of up to two years in prison to anyone who violates the ban.
The Israeli binary options industry has been estimated to bring in between $5 billion and $10 billion a year, to number well over 100 companies, and to employ between 5,000 and many tens of thousands of employees. In recent months, in anticipation of the proposed law, several binary options companies have shut down, while many have relocated their call centers abroad, including to Ukraine and elsewhere in Eastern Europe.
CIT Investments, the company that owns the citrades.com website, was incorporated in Anguilla in March 2013 by two Israeli partners, using the SpotOption platform. In 2014, Jason Scharf, a new immigrant to Israel from the United States, had a falling out with his business partner and bought out his shares in the company.
Soon afterwards, Scharf moved back to the United States from Israel and continued to operate the CITrades website from California, while an Israeli office was staffed by other employees.
CITrades used a firm called Grey Mountain Management as one of its payment processors. Grey Mountain Management was often used by Israeli binary options firms to process payments made by binary options customers in the US. Its owner, David Cartu, recently filed for bankruptcy in an Irish court.
The Times of Israel contacted both Scharf and Shah for a response to the allegations against them but did not hear back before publication.
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