The CEO of an Israeli binary options company accused of defrauding investors out of millions of dollars was doubtless surprised to find herself surrounded by FBI agents shortly after arriving in the United States last week. Binary options is a vast, largely fraudulent Israel-based industry that Israeli law enforcement has failed to tackle for the past ten years, but that the FBI announced in February it had begun investigating in earnest.

Lee Elbaz, 36, the CEO of Yukom Communications Ltd., boarded a New York-bound plane from Tel Aviv on September 14. When the FBI learned of her imminent arrival, agents scrambled to file a criminal complaint with the Maryland district court, charging her with wire fraud and conspiracy to commit wire fraud. They were granted an arrest warrant the same day.

When Elbaz landed at JFK Airport in New York at 4 p.m., she was pulled aside by Customs and Border Patrol for a secondary screening. Federal Bureau of Investigation agents then entered the room and placed her under arrest.

Get The Times of Israel's Daily Edition by email and never miss our top stories Free Sign Up

Elbaz has since been released into the custody of her aunt in the United States after the latter posted $1.8 million in bail. She is under house arrest until her trial and is prohibited from engaging in binary options activity or talking to any witnesses, alleged co-conspirators or victims.

Each of the two charges faced by Elbaz carries up to 20 years in prison.

The publicly available affidavit explaining the cause for her arrest said that Elbaz is the CEO of Yukom Communications Ltd., which operates the Bigoption.com and Binarybook.com websites, which have allegedly defrauded thousands of investors, including Americans, out of tens of millions of dollars.

The affidavit accused Elbaz and other Yukom employees of making false statements about the safety of binary options investments; of falsely promising high returns; of telling investors they would be able to withdraw money when this was not the case; of lying about the location and qualifications of “brokers” assisting victims; of failing to disclose that binary options brands and brokers only make money when investors lose money; and of failing to disclose that her company was allegedly conspiring with another company called SpotOption to manipulate the outcomes of trades.

The Times of Israel contacted Elbaz’s lawyer on Friday for a response to the allegations, and will update this article if and when it is received.

The Times of Israel began exposing binary options fraud in a March 2016 article entitled “The wolves of Tel Aviv: Israel’s vast, amoral binary options scam exposed.”

The fraudulent firms 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.

Israel Police Superintendent Gabi Biton told the Knesset Reforms Committee on August 2 that Israeli crime kingpins are behind the binary options industry and that organized crime in the country has been massively enriched and strengthened as a result of law enforcement’s failure for many years to grasp the vastness of the problem.

“Our eyes have been opened,” said Biton, who investigates financial fraud and money laundering. “What we’re seeing here is a massive organized criminal enterprise. We are talking about criminals at various levels of crime organizations, up to the very top.”

Having passed a first reading and been approved by the Knesset Reforms Committee on August 7, a law to ban Israel’s entire binary options industry is awaiting its final approval in the Knesset. Coalition chairman David Bitan has expressed reluctance to introduce the bill to the Knesset plenary for a final vote.

Bitan told fellow Knesset members on August 7 that his reluctance stems from the fact that a family connected to SpotOption, the binary options platform, is among his biggest supporters in the Likud Central Committee, the body that determines who the Likud Knesset members will be and how high they are ranked in the party hierarchy.

The FBI said in its affidavit that it had requested accounting documents for Binarybook.com from SpotOption, the platform provider that the FBI alleges cooperated with Yukom Communications in the alleged fraud. SpotOption has complied with the FBI’s request, the affidavit said.

“The trading of binary options is facilitated by ‘platform providers’ including a company called ‘SpotOption’,” reads the September 14 affidavit, “which has referred to itself on its website as ‘today’s leading technology platform provider.'”

“Individuals who have worked in the binary options industry — including a former SpotOption employee — reported that SpotOption is physically based in Israel,” the affidavit states, “even though the ‘Contact Us’ portion of its website shows contact information for locations in the United Kingdom, Hong Kong and Cyprus, with no mention of Israel.”

The FBI went on to allege that SpotOption adjusted “customer risk settings” to manipulate the outcome of trades. The FBI was able to subpoena emails from Google and saw correspondence between Lee Elbaz and SpotOption in which they allegedly conspired to rig investors’ trades.

In the documents the company provided to the FBI, SpotOption revealed that the Binarybook.com website alone had earned about $30 million in revenue a year over the past three years, according to the affidavit. Binarybook.com is one of hundreds of binary options websites that have operated from Israel with almost complete impunity in recent years. So far, Israeli authorities have arrested 12 binary options owners and senior brokers although none remains in custody.

Israel’s largely fraudulent online trading industry has been estimated to bring in between $5 billion and $10 billion a year and to have employed well over 10,000 people at its peak. There are hundreds, if not thousands of Israelis, who occupied positions of authority in these companies akin to the positions occupied by Lee Elbaz and her senior staff.

Haggai Carmon, an Israeli lawyer who represents binary options victims, told The Times of Israel that he believes Elbaz’s arrest is “just the tip of the iceberg.”

“While I’m not involved in the pending matter against Lee Elbaz, I learn from court papers that the charges are serious and carry a maximum 20 years of prison sentence for each count (and there are two counts). I believe additional arrests or even extradition requests may follow. My experience has shown that the US justice system sometimes moves slowly, but it is very thorough and not subject to outside pressures — particularly where fraud against US citizens has been systematically perpetrated.”

Nimrod Assif, a lawyer for binary options victims who has practiced law in both Israel and the US, told The Times of Israel he was impressed by the federal action.

“When it comes to enforcement against financial fraud, the authorities in Israel are decades behind the ones in the US. That is reflected in the dedication to the rule of law, and the competence needed in order to deal with the complexity involved.”

Added Asif: “Israeli authorities have failed to investigate, or turned a blind eye, to practices that are clear fraud, and for years now forex and binary options fraudsters here in Israel have been going about their business with impunity.”