Binary Options: Investment, Gambling or Fraud?
Binary options are considered investments by some, little more than gambling by others, and fraud by still others. The instrument is sometimes called “all or nothing options.” Essentially the option is an all or nothing bet on the price of an underlying instrument. The purchaser buys an option paying part of the standard $100 price for it. If the bet is correct and the option moves into the money – the price of the underlying instrument reaches the projected level — the buyer is paid the full $100. If the buyer was incorrect about the price movement, nothing is paid. The buyer is guaranteed not to lose more than was paid for the option initially.
In the United States the instruments are regulated by the CFTC. In other countries, such as Germany, they are banned. If, however, the promoters make claims such as guaranteeing profits, the regulators step in with fraud charges. See, e.g., SEC v. Spark Trading Group, LLC, Civil Acton No. 1:18-cv-01498 (E.D.N.Y. Filed Mar. 12, 2018); see also SEC v. Suleymanov, Civil Action No. 18-68545 (E.D.N.Y. Filed Dec. 3, 2018).
In Israel firms marketed binary options until recently. Prior to the ban firms marketing the instruments apparently flourished. Many investors were defrauded. For example, in U.S. v. Elbaz, No. 8:18-cr-00157 (D. Md. Verdict Aug. 7, 2019) the government alleged that investors in an Israel based binary options firm lost about $145 million. It took a Maryland jury less than one day to convict the CEO of the firm on all counts.
Lee Elbaz, a citizen of Israel, is the former CEO of Yukom Communications, supposedly a sales and marketing firm. In actuality the firm marked binary options worldwide until they were outlawed in 2018.
Yukum’s employed two web sites, BinaryBook and BigOption and a team of marketers supposedly based in London. Part of the marketing pitch identified the individuals and their background. Investors were told that the firm actually represented their interests. As part of the marketing pitch investors were also told how they could withdraw their funds, informed about “big bonuses,” and assured that the investments were “risk free trades” or “insured trades.” Each claims — and even the identities, backgrounds and location of the employees making them — was false, according to the trial evidence.
Defendant Elbaz is one of fifteen defendants who worked for Yukom. Five former employees of the firm entered into plea agreements with the government and testified against their former boss during the three-week trial. During that trial the government’s evidence demonstrated that Ms. Elbaz instructed employees to lie in order to induce investors to spend as much as possible. Employees were also instructed to target retirees, Social Security recipients, pension holders and veterans.
Following brief deliberations, the jury returned verdicts of guilty on each of the four counts. Those were conspiracy to commit wire fraud and three counts of wire fraud. Sentencing is scheduled for December 9, 2019. Ms. Elbaz’s bail was revoked by the Court.