Lee Elbaz, the former CEO of Israeli binary options company Yukom Communications, was indicted by a US federal grand jury on March 22 for allegedly participating in a scheme to “defraud investors in the United States and across the world.”
Elbaz, 36, has been charged in the District of Maryland with one count of conspiracy to commit wire fraud and three counts of wire fraud, according to a press release by the US Justice Department. Each of these four charges carries a maximum penalty of 20 years in prison.
According to the indictment, Yukom provided investor “retention” services for the binary options websites BinaryBook and BigOption. The indictment also alleges that Elbaz, together with her co-conspirators and subordinates, misled investors by falsely claiming that the company earned profits when the investor earned profits, when in fact the opposite was true. Elbaz and her co-conspirators also allegedly misrepresented the return on investment from BinaryBook and BigOption and allegedly used aliases and said they were calling from London when in fact they were calling from Israel.
Trial Attorneys Ankush Khardori and Tracee Plowell of the US Justice Department Criminal Division’s Fraud Section are prosecuting the case.
Negotiating a plea bargain?
According to one expert contacted by The Times of Israel, the indictment is “slim” and this fact suggests to him that Elbaz may be in ongoing plea bargain negotiations with prosecutors.
“My personal read is that there are ongoing negotiations for a plea bargain,” said Haggai Carmon, an Israeli lawyer who represents victims of binary options fraud.
“There’s nothing in the indictment about securities fraud or restitution. Even as is, the indictment potentially carries more than ten years of imprisonment. What’s more important, in indictments with a conspiracy clause, the defendant in a plea agreement commits to testify against the other co-conspirators.”
Carmon stressed that this is his personal interpretation of the indictment and that he does not have actual knowledge of this particular case.
Elbaz was arrested by the FBI in September when she landed at JFK airport on her way to visit friends in the United States. In lieu of the anticipated vacation, she has spent the last several months under house arrest at the home of her aunt in San Francisco. Elbaz wears an ankle bracelet and has only been allowed to leave her aunt’s house for an hour of exercise each day.
In her September 20, 2017 detention hearing, Elbaz’s lawyer Jonathan Lopez defended his client, arguing that Yukom Communications is a legitimate business.
“They do a lot of things in this complaint to make in look like this is some Nigerian boiler room or some sort of lottery scam. That is none of these things. It is a legitimate business, legal type of business in Israel as well as here.”
During a visit to Israel in January of this year, the FBI questioned Elbaz’s boss, Yossi Herzog, who is the owner of Yukom Communications.
Israel’s binary options industry, through which victims worldwide have been fleeced out of billions for the past decade, was finally outlawed by the Knesset in October, in the wake of investigative reporting by The Times of Israel since March 2016. The ban took effect on January 26.
Sources have told The Times of Israel that some Israeli binary options companies have simply changed the product they are selling to cryptocurrency and ICOs, and continue to defraud customers using similar scripts and techniques.
Although Israeli police are cooperating with the FBI probe, they have taken little proactive action over the years to stop the fraud, which involved many thousands of operatives working for more than 100 companies over a period of ten years.
Elbaz’s indictment marks the first criminal prosecution of an alleged Israel-based binary options fraudster in the US. Although the widely fraudulent Israel-based industry is estimated to have involved the theft of billions of dollars from victims worldwide, nobody has ever been convicted in Israel of binary options fraud.
Lee Elbaz is also the defendant in a lawsuit filed in Israel by Irish citizen Alan O’Flynn against Bigoption and Yukom Communications Ltd.
“The employees’ salaries are double and triple the market average and some of the more seasoned employees earn tens of thousands of shekels a month, according to the company’s ads,” reads the text of the complaint, which was filed by Israeli lawyers Nir Friedman and Yossy Haezrachy.
“They don’t work in high tech,” continues the complaint, “they’re not producing anything, neither importing nor exporting any product. Their occupation, to put it simply, is transferring money from the pockets of foreign residents to the pockets of Yukom.”
“They operate under a cloak of secrecy with no regulation, and their actions resemble those of international crime syndicates. Once the customer loses all his money, there are no traces that lead back to Yukom, its employees, or Israel.”
According to the complaint, in March 2016 Alan O’Flynn came across an ad on the Internet for BigOption. The ad was very professionally produced and mentioned that BigOption had won various industry prizes. Yukom is the de facto operator of Bigoption, the complaint alleges.
According to the complaint, Yukom’s salespeople, who represented themselves as professionally trained brokers, told O’Flynn that 80 percent of their investors earn money and that the 20 percent who don’t are small-time investors who don’t understand how to invest.
O’Flynn opened an account with an initial investment of 250 British pounds and was soon introduced to his broker, Lindsay Cole. Under her tutelage, O’Flynn lost 179,000 pounds in less than two months. The plaintiffs claim that Lindsay Cole is in fact a young woman by the name of Liora Welles. Yukom acknowledged that Welles was its employee but not that she used the alias Lindsay Cole.
In their writ of defense, defendants Elbaz and Yukom asked to dismiss the lawsuit due to a lack of privity between the plaintiff and defendants.
“Bigoption is a separate legal person that is not owned by Yukom or any of its representatives,” the defense lawyers wrote. “It operates independently from Yukom as can be seen on its web page.” On its web page, Bigoption was said to be owned by the Time Line Group of Edinburgh, a Scottish Limited Partnership.
The defense further argued that binary options are a legitimate financial instrument throughout the world and that the plaintiff freely chose to invest in binary options. He knew it was risky and kept putting in more money even after he lost a significant amount, the defense said.
Lee Elbaz has recruited employees for binary options web site TitanTrade, suggesting that she worked there as well.