As the Knesset Reforms Committee convened Monday for the first of three sessions this week intended to finalize legislation to ban Israel’s largely fraudulent binary options industry, several of those in attendance were shocked to discover that the draft legislation, unveiled in February, had already been substantively weakened.

The original text, which was drafted by the Israel Securities Authority together with the Justice Ministry and the attorney general’s office, banned the entire binary options industry, but also, significantly, would have prohibited Israeli forex, CFD (Contracts for Differences) and other online trading companies from offering their wares to customers abroad without a license. The February 2017 draft law stipulated that online trading companies operating from Israel and targeting customers abroad must do so with a licence from the country where they operate.

But in the ensuring months, the text was changed, and in its current version — which was approved by the cabinet last month — the ban on binary options stands, but the additional clauses, covering other financial instruments, have been deleted. This new version of the proposed law was formally published by the Knesset on June 20, but not publicized, and many critics of the industry only discovered the change in the last few days or at Monday’s session.

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Critics said Monday that, under the new version, binary options firms, though banned under the proposed law, would be able to slightly adjust the nature of their financial products and be able to easily circumvent its provisions.

“I was astonished to see the current version of the bill,” Nimrod Assif, a lawyer who represents victims of Israel-based binary options and forex companies, told The Times of Israel on Monday.

“It is dramatically different from the version that the ISA originally published. Basically, somewhere along the way, the part that says trading platforms need a license in the country where the investors are was dropped.”

Assif added that passing the bill in its current, watered down version would not solve the larger problem that the bill was originally meant to address.

“If the bill, in its current version, becomes a law, the only thing that trading platforms in Israel will have to do in order to continue soliciting investors abroad is to tweak the products they offer, to make sure they fall outside the narrow definition of ‘binary option.’ Making that change is not complicated.”

Added Jacob Ma-Weaver, an investment adviser in the US who has closely followed the battle against binary options fraud, “Removing other complex financial products from the bill due to industry pressure is scandalous. If the law is too closely tailored to ‘binary options’ as such, it will be trivial for the industry to re-brand and sell some other derivative!”

Asked during the committee meeting when and how the dramatic changes to the law took place, ISA head Shmuel Hauser said, “We received comments from the public concerning the draft law and then we held conversations with people in the [online trading] industry and decided to reduce the scope of the law so that it just applies to binary options.”

A printout distributed to participants at Monday’s committee meeting gave a similar summation of the reasons for the change.

Further pressed on the process by which the change to the proposed law was introduced, a spokeswoman for the Israel Securities Authority said, “I don’t know if I can tell you. These were conversations behind closed doors among government officials and ministers.”

The spokeswoman confirmed that the proposed law presented to the cabinet for a vote on June 18 by Finance Minister Moshe Kahlon was the truncated version. It was overwhelmingly but not unanimously supported in the cabinet, and was approved unanimously by the Knesset plenary in its first reading a week later, on June 26. (The bill must go back to the Knesset from the Reforms Committee for a second and third reading in order to become law.)

In its press releases concerning the June 18 cabinet vote and the June 26 plenary vote, the ISA failed to mention that the bill had been substantially changed. Several anti-binary options activists only discovered the change on Monday morning when a copy of the proposed law was placed in front of them at the committee meeting.

The proposed law still bans all binary options trading, period, and would give the ISA the authority to impose penalties of up to two years in prison to anyone who violates the ban.

In recent months, in anticipation of the proposed law, several binary options companies have shut down, while others relocated their call centers abroad, including to Ukraine and elsewhere in Eastern Europe. Yet others, according to Canadian regulator Jason Roy, are starting to change their products to CFDs and cryptocurrency trading.

Israel ‘the Colombia of financial fraud’?

At Monday’s Knesset Reforms Committee hearing, which ran about two hours, attendees heard from lawyers for binary options victims, former employees of binary options companies as well as victims themselves, who painted a picture of an industry permeated by fraud and criminality.

Several binary options company representatives, and those linked to the industry, were also given time to speak, albeit briefly, toward the end of the session.

Tomas Ferreira, the son of Fred Turbide — a Canadian father of four who died by suicide in December having been duped out of his life savings by an Israel-based binary options firm, 23Traders — pleaded with the committee not to water down the legislation.

“We lost the patriarch of our family,” said Ferreira, speaking from Canada by Skype. “My father told the brokers he was going to kill himself [if they didn’t repay his money]. They ignored him… I implore you to quash this abomination.” (23Traders, whose website has since gone offline, has denied any wrongdoing in the Turbide case.) He said he knew lobbyists wanted to water down the proposed law, and urged MKs not to “weaken.”

Lawyer Deborah Abitbol, who represents forex and binary options fraud victims from French-speaking countries and elsewhere, told the meeting that she has submitted dozens of complaints to the police and Israel Securities Authority and received little to no response.

“The French government is asking Israel to investigate specific cases of binary options fraud,” she added. “The Israeli government is not cooperating with the French government requests.”

Abitbol said she had recently approached the Israeli police with 30 complaints from victims and was told that the “police are not accepting forex complaints.”

She claimed that new scams, perpetrated by the same individuals, are popping up daily and neither the police nor the Israel Securities Authority seems to want to take responsibility.

The police, who had been asked to attend Monday’s meeting, did not send a representative.

Cedric Legault, another alleged victim, from France, also spoke to the committee via Skype: “I was contacted by a forex company that said they were based in Cyprus. The brokers kept telling me that if I want to make money, I have to invest more and more. They called me every day. My broker and his wife even came to visit me in France on their honeymoon. I invested 74,000 euros. My account reached over 200,000 euros. But when I tried to withdraw money they refused and cut off contact with me,” he said. “I visited Israel and asked for my money back [to no avail]. I tried to kill myself recently. Why doesn’t Israel stop this? Why doesn’t Israel seize their assets and punish them?”

Another lawyer, Amir Altashi, who said his clients are mostly Arab victims of Israeli forex and binary options fraud, told the attendees that not just binary options platforms but many forex platforms as well are rigged to make the client lose money. But unlike European victims, Arab victims cannot sue their alleged defrauders in Israel.

“Israel has become like Colombia,” he added ruefully, “but instead of exporting drugs we export financial fraud.”

Several former employees of the industry described fraudulent practices.

“I was allowed to promise or say anything I wanted and lie through my teeth. All clients lose their money in the end,” said one former binary options salesperson.

Meanwhile, advocates for industry also spoke briefly at Monday’s hearing.

Yossi Herzog, who said he is connected to a company called Yukom Communications that “provides services” for binary options sites like BigOption.com and BinaryBook.com, told the hearing that the proposed law violates his rights to freedom of vocation. He asked why he should be stopped by Israel from selling binary options when it is not illegal in many countries abroad.

“If I call my workers in Cyprus and tell them what to do from Israel, would that make me a criminal?” he asked rhetorically.

Binary options are regulated in Cyprus and not considered against the law there.

Moshe Avrahami, the CFO of Spotoption, which provides trading platforms widely used in the industry, argued that the proposed law is problematic because Spotoption is a technology company and should not be banned merely for providing technology.

“Why shouldn’t a technology company be allowed to operate from Israel?” he asked.

A man who identified himself as Tzion Ben Tzion, a janitorial worker for a binary options platform company, told the committee that while he sympathizes with the victims of fraud, he, too, is a potential victim because he and many others will be thrown out of work if the binary options industry is closed. “I am a father, I have a child with special needs, I have a mortgage, three kids, I am about to lose my job,” he pleaded.

The second of the three hearings of the Reforms committee is scheduled for Wednesday, August 2, following Tuesday’s Tisha B’Av fast day. At that meeting, Rachel Azaria (Kulanu), the committee chair, said she hopes to hear further remarks at greater length from opponents of the binary options ban.

Members of the public who wish to attend the next two sessions scheduled for Wednesday August 2 and Thursday August 3 can register here and here.

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

Fraudulent Israeli binary options companies 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.

The Israeli binary options industry has been estimated to bring in between $5 billion and $10 billion a year, to number well over 100 companies, and to employ between 5,000 and tens of thousands of employees.