"The greed of the crooks in the binary options sector knows no bounds and their long claws reach every corner of the earth," says Israel Securities Authority (ISA) chairman Shmuel Hauser. "We get complaints from those harmed and authorities from North America via Europe, East Asia and even Arab countries. There is no need to elaborate about the damage to Israel's image that this matter is causing Israel and the Jewish community worldwide. I'd like to take this opportunity to appeal to the consciences of these crooks who are marketing binary options - in so far as they have one - and put up a mirror to their faces for some soul searching. I call on them to cease the operations that rob innocent people of all their savings that they have worked all their lives for."
Hauser is angry. He is angry that the Securities Law has limited authority to stop the binary options industry operating in Israel - an industry perceived as a "casino" by him and by many others. He is angry that some of the employees in the industry are blatantly and crudely defrauding people abroad - and his hands are tied. He is angry that foreign citizens are losing all their money and a finger is being pointed accusingly at Israel. "These activities stain us," he says.
Hauser told "Globes" that the party is about to end. "We have joined together, all the enforcement agencies, to combat this ugly phenomenon. We have declared an all-out war against binary options. We hear dreadful testimonies and stories about people being persuaded to enter this arena. Not Israelis. I make it clear all the time that see these operations as forbidden and akin to extortion and exploitation of the public by greedy charlatans, that phone them up and take their money. We are doing everything that we can today to stop this."
This is not a secret industry not one that started operating that recently. In recent years the binary options industry has been uncovered bit by bit - and what has been discovered has shocked many. At first, former employees from various companies exposed the work methods of this industry - huge salaries of tens to hundreds of thousands of shekels a month for young people aged 25-32, so that they would offer and tempt investors to transfer most of their money to companies in the field even though they knew they would lose it. Among the employees who quit were new immigrants, fluent in a range of languages who were seduced into making a living in Israel, the Holy Land, and found themselves lying to innocent people in the countries from which they emigrated, and robbing them of their savings.
Whatsapp groups and Facebook pages have been set up calling on the practice to be eliminated. Stories of fraud began to spread like wildfires and those harmed by these companies, or who quit them began to organize conferences in order to fight the fraud. Very quickly, those working in this industry earned the name "the wolves of Tel Aviv" and a fuss was stirred up about the need to stop the phenomenon.
It's still not enough
Last March, the ISA, which Hauser heads, prohibited marketing binary options in Israel and began intensively promoting Knesset legislation that would prohibit Israeli companies from marketing binary options abroad. "There are already drafts and formulations of a bill and I hope that it will soon be enacted," Hasuser says.
The ISA has also initiated judicial enquiries into Israelis working in binary options as requested by overseas enforcement agencies. This is an investigative procedure carried out by the ISA in Israel, which is the start of a probe into the fraud of foreign citizens by Israelis. The foreign enforcement agency asks for a specific person to be investigated and the ISA conducts the probe and transfers its findings to the overseas authority.
"As part of cooperation agreements with other securities authorities around the world, we undertake many judicial enquiries. Usually there are about four judicial enquiries per year on average for other securities authorities but in the binary options sector, we are talking about 30 judicial enquiries over the past two years, where we have been asked to open investigations by the overseas country," Hauser reveals.
He continued, "We don't see the full investigative picture as part of the judicial enquiries, only the part that we are asked to investigate. But the picture depicted is awful. They ask naive people 'come put your money here and you'll profit for sure.' If they lose then they tell them 'carry on putting money in and eventually you'll profit,' and then they do earn something and then they can say, 'you see it does work so bring more money.' They persuade the people continue to transfer money until the person has lost all their money. They use all sorts of models and proofs, persuasion, putting on pressure, and people are tempted to do this even though we have proclaimed time and again not to invest in this."
Hauser initiated steps to unit all the enforcement agencies and combat the practice. "above and beyond stopping marketing in Israel, it really bothers me that people abroad are being hurt from Israel. But we don't have enough tools to stop this. Foreign regulators contact us and say, 'it's not enough that you only enter the picture when we ask you to conduct a judicial enquiry on a specific person after we've begun a probe in our country. We want you to stop this at its root - all these dreadful operations.
"And so we have joined forces and checking out how all the enforcement agencies can cooperate in order to stop fraud in this field. If someone steals, it's not connected to securities law. It's not within my jurisdiction but rather the police, so the police have also geared up to deal with this story. And as long as I have a suspicion that there is money laundering, the Authority for the Prohibition of Money Laundering is also involved etc. All the relevant authorities have joined force and we are seeing how we can solve this problem because it is creating a very negative image for Israel."
Hauser is especially disturbed by the negative image worldwide that binary options are inflicting on Israel. "In addition to the severe financial harm on people around the globe, those marketing binary options are really causing Israel's image growing damage and generally fueling antisemitism towards Jews in general and Israel in particular. The State of Israel is investing major efforts in the war against BDS and a small group of Israelis are causing the country major damage through the back door."
The main problem is that this market is unregulated. It is hard to know who is behind it all and almost impossible to estimate the size of the industry. "We can estimate that we are talking about tens of millions and even billions, it depends how you calculate the amounts invested," Hauser says. "What is certain is that we must stop this regardless of the scale of it. Therefore, we are promoting legislation that says that we will not allow you to operate at all. Not only that you cannot solicit Israelis but you cannot operate here at all. We don't want your computers here, and we don't want your marketing people here, we want to get rid of you from here. This is a dramatic departure from all concepts of Israeli supervision and legislation. Imagine that a company wants to hold an offering in Belgium and I come and say to them, even before Belgium, ask for my approval. It's not reasonable. Therefore, this legislation is exceptional and that's clear. With binary options we said yes we ant to go a long way. Another step forward. We don't want them operating here. It doesn't interest me where they do it as long as they don't do it from here."
What countries are hurt most by binary options marketed from Israel?
"Today it has already spread to other country worldwide but we've had a lot of approaches from Belgium, France and the US and it's most urgent with the Belgians and the French. The European market has set up a task force to fight the practice and at first they didn't want us to be part of it because we have a negative reputation in the industry. The sector really bothers them and they want to find out how to eliminate it. They invited us to say what we thought about the story and I think that all our initiatives - combining all the enforcement agencies added to our legislation is going to solve the problem from our point of view."
"Meanwhile, until we can implement it, I think it vexes them. They think we should be getting it done more quickly, and I also think we should do something quickly. They turn to us with questions like why is Israel the incubator for binary options? Will the law pass and will we have the authority to act against these charlatans? Why have we only woken up now? Why did you stop the marketing to Israelis only in March while not working more resolutely to stop defrauding overseas people before that? Everybody has been talking about this major fraud all the time - where were you?"
"There has been a problematic situation here. It took many years before we were given the authority to grant a license - before the law passed, to our regret, there were elections etc. We can only stop the operations in Israel when we have a law, and we have checked out these companies. Eighteen months ago, when we were given the authority to issue licenses, we needed to examine these companies and only then were we exposed to the full horror of this practice. The moment we understood what was going on here, we decided not to permit marketing to Israelis. We were among the first that said that we would not let them operate in Israel. That was why it took time until we understood the picture."
"As time passed, we began to understand how enormous this sector is. And in the past few months, we have been doing all that we can to stop it. Everything that we can do to stop these activities within Israel, we will do. It is a stain on the reputation of the State and the ISA."
Published by Globes [online], Israel business news - www.globes-online.com - on December 23, 2016
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