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US jails binary options fraudster, who then claimed to help victims, for a year
As former Israeli immigrant Austin Smith prepares to serve his term, ex-legal counsel for Wealth Recovery International says she’s helping US authorities track down clients’ money
Simona Weinglass is an investigative reporter at The Times of Israel.
Austin Smith, a binary options sales agent turned owner of a company that claimed to recover victims’ lost funds, has been sentenced to 12 months and a day in US federal prison.
Smith, 35, pleaded guilty last March to one count of conspiracy to commit wire fraud for his role in a $140 million fraud scheme carried out by the Israeli-run binary options websites BinaryBook.com and BigOption.com.
But Smith is best known for his subsequent role as the founder and executive chairman of a company called Wealth Recovery International, which promised thousands of alleged victims of binary options fraud that it would help them to get their money back. Clients and former employees of the company told The Times of Israel that a large proportion of clients received only minimal help after paying an up-front fee which varied from hundreds to thousands of dollars per client.
Smith’s year-and-a-day sentence, handed down on November 22, is primarily for his activity at BinaryBook, before he founded Wealth Recovery International. He has also been ordered to repay almost half a million dollars to his victims.
As part of his March plea deal, Smith provided testimony for the US government during the July-August 2019 trial of Yukom Communications CEO Lee Elbaz. He testified against her, he told the court, in the hope of receiving a lighter sentence. The maximum sentence for the offense to which he pleaded guilty, conspiracy to commit wire fraud, is five years in prison.
Smith had initially worked as a retention agent for Numaris Communication in Tel Aviv, a sister company to Yukom Communications, the company at the heart of the $140 million fraud, from August 2015 till January 2016.
Before leaving the company, Smith and a few friends hacked into the Numaris Communication computer system, he said during his testimony during the Elbaz trial. He and his friends appropriated lists of clients and internal company emails, he said, which he and his associates then used to launch a company, in April 2016, called “Wealth Recovery International” whose stated purpose was to help victims of binary options fraud recover their money.
Smith used the information he had clandestinely acquired from Numaris Communication to contact former clients of BinaryBook.com and offer to help them recover their money. The US Justice Department found that while he did recover money for an unspecified number of clients, on at least one occasion he earned a hefty commission from a client he had previously participated in defrauding.
At its height, Smith’s company, Wealth Recovery International, had thousands of clients from all over the world hoping to get their money back from more than 100 binary options, forex and cryptocurrency websites, former employees told The Times of Israel.
Wealth Recovery International charged these clients an up-front fee, as well as a percentage of any proceeds recovered.
Reports are mixed as to how successful the company was in its stated mission. The Times of Israel received a number of emails over the past two years from people who said they had been clients of Wealth Recovery International and received no substantial assistance after paying the up-front fee.
The company’s former legal counsel Tamar Hamm told the Times of Israel in March that Wealth Recovery International had recovered $8.5 million for clients and that a large percentage of the company’s clients were satisfied.
But when contacted for this article, Hamm’s lawyer said that Hamm has since left the company, after taking notice of “irregularities in the company’s business practices.”
Hamm’s attorney, Albert Watkins of Kodner Watkins, LC, told the Times of Israel in an email that she is now helping the US Department of Justice track down clients’ funds.
“Through our firm,” her lawyer said, “proactive measures have been taken to share with US Department of Justice information regarding the location and amounts of funds advanced by Wealth Recovery International clients. Our client has diligently fought to maintain punctilious observance of her duties and has been compelled to endure significant personal and financial hardship navigating what might best be described as an otherworldly scheme and artifice which gave rise to the criminal proceedings being initiated against the former principal.”
Smith’s attorney, Daniel Suleiman sent the following response to the Times of Israel: “While Mr. Smith was at the helm, Wealth Recovery International recovered approximately $8.5 million for victims of binary options fraud. That remains a remarkable achievement, given the lengths the perpetrators of these vicious fraud schemes have gone to cover their tracks and conceal the money trail.”
On September 25, 2019, an Israeli judge ordered that Wealth Recovery Israel be liquidated.
Smith will be required to report to prison to serve his sentence before or by January 6. 2020. Judge Theodore D. Chuang recommended that he be incarcerated at Camp FCI-Otisville in New York State.
After his prison term he will be under “supervised release” for three years, meaning his whereabouts and activities will be monitored by a probation officer. During the supervised release period, Smith will also be required to undergo substance abuse testing, enroll in a mental health treatment program, enroll in a substance abuse treatment program and take all prescribed mental health medications.
In addition, he will be required to pay $486,199 in restitution to his binary options victims at a rate of $500 per month.
Smith’s binary options co-conspirator, Shira Uzan, who also pleaded guilty and also testified at the Lee Elbaz trial, was sentenced on November 21 to four months in prison followed by three years of supervised release. Uzan is required to pay restitution of $1,819,595.
A murky industry
In recent years, a cottage industry has sprouted up in Israel and elsewhere that offers to help victims of online trading scams recover their funds. Sometimes these money recovery operatives use fake names or hide behind shell companies. Some are former employees or associates of the same companies the alleged victims lost money to. Some don’t actually recover money on behalf of clients while others use unorthodox methods to do so.
For instance, in July 2018, Wealth Recovery International sued another wealth recovery company called “Recover Your Deposit” in Israel for NIS 365,000 ($105,289). In its complaint, Wealth Recovery accused “Recover Your Deposit” of being run by four former brokers from binary options firms who had stolen their companies’ databases and were now, Wealth Recovery alleged, contacting customers and offering to help them to get their money back.
The complaint in the lawsuit explained that Wealth Recovery had earlier confronted the people behind Recover Your Deposit, and threatened to sue them and expose their deeds to their former binary options employers. Wealth Recovery would refrain from doing so, it had said, if Recover Your Deposit met four conditions: First, it asked that Recover Your Deposit provide to Wealth Recovery the company’s bank statements for the past six months. Second, it asked that Recover Your Deposit hand over $100,000 in payments it had received from clients. Third, Wealth Recovery demanded that Recover Your Deposit provide information and affidavits about its staffers’ former binary options employers. And fourth, Wealth Recovery demanded that Recover Your Deposit retract slander the latter company had allegedly written about a lawyer named Veronica Birman who worked closely with Wealth Recovery International. According to Wealth Recovery’s complaint, the defendants originally signed the agreement, but then failed to uphold its terms.
Recover Your Deposit and the four individuals allegedly behind the company never defended themselves against the lawsuit.
The lawsuit sheds light on the murky Israeli money recovery industry where individuals whose background, affiliations and qualifications are not always apparent offer to retrieve money on behalf of victims of fraud. While it is impossible to know prima facie which money recovery businesses are well-intentioned and which set out to defraud victims a second time, some lawyers familiar with this cottage industry advise potential clients to be wary.
“Advising victims on which recovery method to follow, as well as sending demand letters on the victims’ behalf, would generally be considered legal services, and therefore require a license to practice law,” attorney Nimrod Assif told The Times of Israel.
“Victims should be wary of unlicensed individuals offering legal services. In addition, the fact that a recovery organization approached the victim, and not the other way around, is a red flag. First, lawyers are generally not allowed to solicit clients. Second, victims should ask themselves how that organization has found them, and whether it was in collaboration with some binary options entities. Furthermore, cases against binary options entities are complex, and it takes a considerable amount of time to pursue them. Therefore, victims should ask how many clients those recovery organizations already have, and whether they have the capacity to take more cases.”
When aliya goes downhill
During his July 25 and 26 testimony in the Greenbelt, Maryland trial of Lee Elbaz, Austin Smith told the court that starting in high school and throughout his 20s he struggled with drug addiction and that he moved to Israel in November 2013 with the help and encouragement of a rabbi. Smith had hoped to curtail his drug habit once in Israel, which he said he successfully did.
At first, Smith lived in Jerusalem, he said, but then he moved to Tel Aviv where he got a job, first with a binary options call center called Rushmore Marketing, and then with Numaris Communication.
Smith’s story is not unique, and highlights the situation of some young immigrants to Israel who made aliya (immigrated) to Israel to seek spiritual uplift or to start a new chapter in their lives only to end up working for criminal organizations. In many cases, these immigrants were actively, though often unwittingly, steered towards criminal companies by Jewish organizations whose purpose was to help new immigrants settle in Israel.
The binary options industry flourished in Israel for a decade before it was outlawed via Knesset legislation in October 2017. At its height, hundreds of companies in Israel employed thousands of Israelis who allegedly fleeced billions out of victims worldwide. The fraudulent firms would dupe victims into believing that they were successfully investing and earning money, encouraging them to deposit more and more into their accounts, until the company eventually cut off contact with the investor and disappeared with all or almost all of their money.
Israeli prosecutors have yet to indict a single binary options suspect on charges of fraud, while the United States has indicted about two dozen.
