The US Commodity Futures Trading Commission on Wednesday sued five Canadian-Israelis and an American over an alleged $165 million fraudulent binary options trading scheme largely carried out from Israel.
The CFTC civil complaint alleges that for at least five years — from May 1, 2013, through April 29, 2018 — Canadian-Israeli brothers David Cartu, Jonathan Cartu and Joshua Cartu, and Canadian-Israeli brothers Leeav Peretz and Nati Peretz, operated call centers primarily located in Israel that “targeted and victimized U.S. residents” through an online trading scam.
The CFTC also sued Ryan Masten, a Texas-based business associate of the other defendants, as well as four companies belonging to the defendants, All Out Marketing Limited, BareIt Media LLC d/b/a SignalPush, Blue Moon Investments Ltd., and Orlando Union Inc.
“The scope and breadth of the fraudulent activity alleged in this case is only matched by that of the international and domestic cooperation organized to prosecute it,” said CFTC Division of Enforcement Director James McDonald in a Wednesday press release.
David Cartu, Jonathan Cartu, and Joshua Cartu were previously sued by the Ontario Securities Commission of Canada in May 2020.
The CFTC alleged that the defendants operated the binary options websites BeeOptions, Glenridge Capital, and Rumelia Capital.
“The Cartu Brothers, acting in concert with Defendants Leeav Peretz and Nati Peretz, offered illegal, off-exchange binary option trading on currency pairs, oil, and other commodities on internet websites through customer-facing brands they owned and operated including ‘BeeOptions,’ ‘Glenridge Capital,’ and ‘Rumelia,’ reads the complaint.
The complaint accuses the defendants and their employees of promising investors quick returns even though most investors actually lost their money. It accuses them of allegedly misrepresenting their business model, saying that their interests were aligned with those of their investors when in fact they were not. Employees also allegedly lied about their professional expertise, their identity and location.
“On the Cartu Brands’ websites and in emails, telephone calls, and other communications with customers and prospective customers, the Cartu Brothers, Peretz Brothers, and the individual brokers promised ‘quick’ returns of ‘60-85%,’” reads the complaint, “even though the substantial majority of customers lost money. They falsely stated that the interests of the Cartu Brands were aligned with the interest of customers and failed to disclose that the Cartu Brands (and the Cartu Brothers and Peretz Brothers themselves) profited from customer losses. Further, at the direction of the Cartu Brothers and Peretz Brothers, the brokers misrepresented their financial expertise, compensation structure, physical location, and identity.”
According to the complaint, Jonathan Cartu and his brothers began their allegedly fraudulent binary options business in April 2013, with a binary options website called BeeOptions that “operated out of a conference room in the offices of an Israeli-based gaming company owned by Josh and David.”
According to Israel’s corporate registry, Josh and David together owned a total of five Israeli companies, Simple Mega Solutions Ltd. (owned by David Cartu), Tracy P.A.I. Management (owned by Josh and David prior to June 2016), Fifth Revenue Ltd. (owned by all three Cartu brothers), King Consulting Ltd (owned by David Cartu) and Sandbox Media (owned by Josh Cartu). Sandbox Media is an online gambling company and may be the gaming company the CFTC is referring to.
The binary options industry flourished in Israel for a decade before it was outlawed via Knesset legislation in October 2017, largely as a result of investigative reporting by The Times of Israel that began with a March 2016 article entitled “The wolves of Tel Aviv.”
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, with seven convictions of Israelis, and taken civil enforcement actions against many others.
The Times of Israel sent the Israeli Justice Ministry an email with a link to the CFTC complaint, asking the ministry if it had been aware that an alleged $165 million fraud scheme took place under its nose and whether it is a sustainable law-enforcement strategy to allow this kind of fraud to run rampant in Israel while foreign law enforcement bodies occasionally take action against alleged Israeli criminals. The Justice Ministry did not respond.
The platform and the payment processor
According to the complaint, the defendants started their binary options career using the SpotOption platform.
“At the beginning of the Relevant Period, the Cartu Brothers utilized a trading platform and related software operated by third-parties (the “Spot Platform”) to perpetuate their fraudulent binary options scheme.”
This platform allegedly allowed employees of the websites to see customer names and contact information, their account history, and the trades they attempted, as well as any withdrawal requests. According to the complaint, the SpotOption platform could also be used to manipulate the results of binary options transactions.
“Unbeknownst to customers, the results of binary option transactions could be manipulated on the Spot Platform, for example, by changing the strike price of a trade just before expiry. For at least part of the Relevant Period, Jonathan and/or the Peretz Brothers typically approved requests to alter trading outcomes for customers of the Cartu Brands.”
By September 2015, the Cartus had developed their own proprietary trading platform known at various times as the “Glenridge platform,” “Novustra Binary Trading Platform,” and “Inovesto platform.” According to the complaint, this platform too had a function that allowed binary options site operators to “manage risk” by altering the outcomes of trades. By March 2016, according to the complaint, the platform had at least ten brands.
According to the complaint, the Cartu brothers also set up their own, now-defunct payment processor called Greymountain Management Limited to facilitate processing of payments from customers in the US and elsewhere. Greymountain Management was located in the same building as Wirecard UK and Ireland and used the collapsed German payments company Wirecard as one of its merchant acquirers, as The Times of Israel has previously reported.
According to the complaint, sixty percent of transactions processed by Greymountain Management, according to the complaint,were from investors in the United States or Canada, 20% were from Africa, 10% from Europe, 5% from Australia and Oceania, and 5% from the former Soviet Union.
“During the Relevant Period,” said the complaint, “the Cartu Brothers and their employees and agents, acting through Greymountain and other related entities, processed over $165 million in credit card payments for binary option transactions offered by the Cartu Brands and other brands operated by third-parties.”
A family business
David Cartu, the youngest of the three brothers, was born in 1985. He currently lives in the Republic of Georgia, according to sources familiar with his whereabouts. Cartu appeared at a court hearing in Israel on August 16 after being sued by an American woman who allegedly lost hundreds of thousands of dollars to BeeOptions. During the hearing, both Cartu and his alleged victim testified. The judge reportedly admonished Cartu several times for giving evasive answers, at one point calling him a “wise guy.”
David Cartu has denied that he had any ownership stake in BeeOptions.
On May 18, the same judge gave an ex parte freezing order against David Cartu, in the amount of NIS 5.4 million ($1.6 million), with respect to a home he owns in the Israeli seaside town of Netanya.
Jonathan Cartu, the middle brother, was born in 1983. According to the CFTC complaint, he resides in Israel.
Joshua Cartu, according to the complaint, was born in 1979 and lives in Budapest, Hungary. According to people who know him who spoke to The Times of Israel, Josh Cartu mingled with the Tel Aviv glitterati, attending sports car racing events and dating models. Most notably, in 2018 he dated Lee Levi, a Danish-Israeli model and former girlfriend of Prime Minister Benjamin Netanyahu’s son Yair. Joshua Cartu has become an international celebrity who races Ferraris and has almost a million followers on Instagram.
The CFTC does not have the authority to criminally prosecute defendants. It is hoping the judge will rule that the defendants must pay civil monetary penalties and compensation for alleged victims.
In its press release, the CFTC thanked the Ontario Securities Commission (OSC), the US Securities and Exchange Commission, the Australian Securities and Investments Commission, the International Financial Services Commission of Belize, the Cyprus Securities and Exchange Commission, the Federal Financial Supervisory Authority of Germany, the Central Bank of Ireland, the Israel Securities Authority, the Malta Financial Services Authority, the Swiss Financial Market Supervisory Authority FINMA, and the United Kingdom Financial Conduct Authority for their help with the investigation.
The case was investigated by CFTC staff members Heather Dasso, Benjamin E. Sedrish, Stacie Pan, Elizabeth N. Pendleton, Elizabeth Streit, Scott R. Williamson, and Robert T. Howell.