Binary Options Fraudsters to Pay $450 Million in Restitution

In a major victory for investors who were defrauded by a global binary options scheme, a U.S. district court has ordered the operators to pay $450 million in restitution and penalties.The U.S. Commodity Futures Trading Commission (CFTC) had filed a lawsuit against a group of offshore, unregistered companies and Israeli citizens in 2019, alleging that they had breached U.S. derivatives rules and defrauded investors.

The companies involved included WSB Investments Ltd. (BinaryBook), which was incorporated in the U.K. and other jurisdictions, as well as Israeli-based Yukom Communications Ltd., Linkopia Mauritius Ltd., Wirestech Ltd., and Zolarex Ltd.

A U.S. district court judge in the Northern District of Illinois has now issued a default judgment against the companies, finding them liable for fraud and various regulatory violations.

The binary options scheme, which was operated online from March 2014 to August 2019, allegedly solicited investors to trade illegal, off-exchange binary options.

According to the court’s order, the companies made numerous fraudulent misrepresentations to investors, including claims that binary option transactions were profitable, when in reality, the substantial majority of customers lost money.

The companies also misappropriated customer funds and made misrepresentations to investors to discourage them from withdrawing their funds.

Furthermore, the court found that the companies manipulated the trading platform’s risk settings to limit or prevent customers from being “in the money” with winning trades.

The order also revealed that there was no distinction between the various companies’ brands, and that they shared office space, employees, and co-mingled investors’ funds.

The court has ordered the defendants to pay $112.9 million in restitution and a $338.7 million civil monetary penalty.

The companies have also been permanently banned from the markets.

In a parallel criminal action, one of the scheme’s alleged masterminds was convicted of wire fraud and conspiracy to commit wire fraud in 2019.

She was sentenced to 20 years in prison and ordered to pay $28 million in restitution.

One of her co-defendants pled guilty to a conspiracy charge and was sentenced to five and a half years in prison and ordered to pay $7 million in restitution.

Key Findings:

• The companies made numerous fraudulent misrepresentations to investors, including claims that binary option transactions were profitable.
• The companies misappropriated customer funds and made misrepresentations to investors to discourage them from withdrawing their funds.
• The companies manipulated the trading platform’s risk settings to limit or prevent customers from being “in the money” with winning trades.
• The companies shared office space, employees, and co-mingled investors’ funds.
• The companies have been ordered to pay $112.9 million in restitution and a $338.7 million civil monetary penalty.
• The companies have been permanently banned from the markets.

Timeline:

• 2019: The CFTC files a lawsuit against the offshore, unregistered companies and Israeli citizens.
• 2019: One of the scheme’s alleged masterminds is convicted of wire fraud and conspiracy to commit wire fraud and sentenced to 20 years in prison and ordered to pay $28 million in restitution.
• 2019: One of her co-defendants pleads guilty to a conspiracy charge and is sentenced to five and a half years in prison and ordered to pay $7 million in restitution.
• Present day: A U.S. district court judge issues a default judgment against the companies, finding them liable for fraud and various regulatory violations.

Source: Investment Executive