Catch of the Week — Yukom Communications and Others Face CFTC Claims of Binary Options Fraud
The Commodity Futures Trading Commission filed suit against five entities and four individuals on August 12, 2019, in the Northern District of Illinois for running a $103 million fraudulent binary options scheme. The defendants, led by Israeli company Yukom Communications Ltd.,which marketed binary options using two websites known as BinaryBook and BigOption.
In recent years, the CFTC has targeted fraudulent binary options schemes offered by unregistered entities and individuals. Binary options can be legitimate financial instruments, with traders buying options based on a prediction that the price of an underlying asset or index will be above or below a strike price when the option expires. There are two possible outcomes: if the trader’s prediction is correct, they receive a set amount of cash; if they are incorrect, they get nothing. With similarities to gambling, binary options are prone to fraud, especially when marketed to individual investors.
CFTC Allegations Against Yukom
The CFTC’s complaint states that from at least March 2014 to the present, the defendants operated a scheme where they solicited and accepted over $103 million of investor money for purported trades in binary options, claiming that the binary options were legitimate transactions subject to normal market conditions. In reality, the CFTC alleges, the transactions were shams, manipulated to ensure investor losses, with defendants on the opposite side of the binary option, thereby benefiting from customer losses. The defendants allegedly claimed that the binary options would be profitable for investors when in reality over 95% of the investors lost money.
The scheme was international. The CFTC alleges that defendants engaged in activities to conceal the true nature of their fraudulent enterprise, including setting up various foreign nominee entities to enter into agreements and open off-shore bank accounts through which customer funds are transferred, concealed, and ultimately misappropriated. Along with Israeli company Yukom, the CFTC also has named as defendants Mauritius company Linkopia Mauritius Ltd.; Marshall Island companies Wirestech Limited d/b/a BigOption and Zolarex Ltd. d/b/a BinaryOnline; and Anguilla-based WSB Investments Ltd. d/b/a BinaryBook, as well as the individuals Yakov Cohen, Yossi Herzon, Lee Elbaz, and Shalom Peretz. Elbaz, who was the CEO of Yukom, was convicted last week on charges of of wire fraud and conspiracy to commit wire fraud in the United States District Court for the District of Maryland and is awaiting sentencing.
Consistent with the international nature of the fraud, in its press release, the CFTC notes the work of multiple international enforcement agencies on the matter, including the Israel Securities Authority, the Australian Securities and Investments Commission, the Financial Supervision Commission of Bulgaria, and the Central Bank of Hungary.
This catch highlight the continued enforcement efforts by the CFTC to combat market manipulation and binary options fraud. The CFTC will continue to combat harmful influences on the commodities markets that distort those markets for all investors and prey on individual investors and market participants.
While there is no report at this time that this enforcement action was triggered by a whistleblower, qualified individuals who file a submission with the CFTC under the whistleblower provisions in the Dodd-Frank Act may be eligible for a reward. Enforcement actions like this one show the extraterritorial reach of U.S. government agencies and the need for whistleblowers from any country to provide information on international schemes. Whistleblowers are often in a prime position to provide information on improper conduct by their employers, competitors, or related entities that can lead to the government’s recovery of ill-gotten gains across the globe. Such recoveries ensure that commodities markets are traded on fairly, wrongdoers are held accountable, and investors are protected.
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