Israeli-based binary options platform charged with $100m fraud in the U.S.

In a landmark enforcement action that tackles the very bedrock of Israel’s fraudulent binary options industry, the US Securities and Exchange Commission has filed fraud charges against SpotOption, a company at the heart of the multi-year scam that has defrauded victims worldwide out of billions, and against two of its top executives.

The SEC on Friday charged the Ramat Gan-based SpotOption, which provided the platforms for a significant number of the hundreds of firms that perpetrated the global fraud, as well as its two largest shareholders, Malhaz Pinhas Patarkazishvili (also known as Pini Peter) and Ran Amiran, with defrauding US investors out of over $100 million through “fraudulent and unregistered online sales of risky securities known as binary options.” It further alleges SpotOption used “deceptive and manipulative” tactics, including rigging the trading platforms, to make certain that investors lost money.

The fraudulent binary options industry flourished for over a decade, from 2007, until it was outlawed by the Knesset in 2017, as a direct result of The Times of Israel’s investigative reporting, which began with a March 2016 article entitled “The wolves of Tel Aviv: Israel’s vast, amoral binary options scam exposed.” Many of the Israeli firms have since relocated overseas and continued the scam.

SpotOption was secretively given hundreds of thousands of dollars of government funding between 2014 and 2016 to expand its operations to China, even as The Times of Israel was exposing the scam and regulators were working to ban it.

SpotOption, which later changed its name to Spot Tech House Ltd., was the largest binary options platform provider, used by hundreds of websites, according to its own marketing material. SpotOption brokers employed thousands of Israelis.

SpotOption and its shareholders defrauded American investors from at least April 2012 through August 2017, the SEC alleges in its civil enforcement action. People with knowledge of the company told The Times of Israel that the total amount of money earned by SpotOption through allegedly fraudulent binary options trading is in fact considerably higher than $100 million, and that the SEC has likely specified a figure it can efficiently prove beyond a reasonable doubt.

Fraudulent binary options companies ostensibly offered customers worldwide a potentially profitable short-term investment. But in reality — through rigged trading platforms, refusal to pay out, and other ruses — these companies fleeced the vast majority of customers out of most or all of their money. The fraudulent salespeople routinely concealed where they were located, misrepresented what they were selling, and used false identities.

Israel has not prosecuted any of the thousands of employees of the binary options industry. The US Department of Justice has prosecuted several key individuals, notably including Lee Elbaz, the CEO of Yukom Communications Ltd. who was sentenced to 22 years in prison in 2019. Her bosses, Yossi Herzog and Kobi Cohen, have both been indicted, and are still at large.

According to the SEC’s complaint, SpotOption served as a one-stop shop for “white label partners” who wished to start a binary options website. These partners directly marketed binary options to investors around the world without telling them that they were the counter-parties on all investor trades. In other words, the websites, and SpotOption, made money when investors lost money.

SpotOption provided these white-label partners with everything they needed to start a brokerage, the SEC alleges. This included a customized, “user-friendly,” website, a content management system or “CMS,” software that allowed the brokers to create and edit content on their websites; hosting and management of their websites; customer relationship management or “CRM” software; third-party payment processing services; as well as training and other services.

SpotOption marketed its platform to potential partners by telling them that “the average investor lost 80% of their investment within five months,” the SEC charge alleges.

The SEC further alleges that SpotOption employed “deceptive and manipulative” tactics to cause investors to lose their money and consequently earn money for SpotOption. These practices included “manipulating the trading platform to increase the probability that trading would be unprofitable” as well as offering investors a “bonus” that prevented investors from withdrawing their funds.

According to the SEC, SpotOption targeted thousands of US victims, including retirees.

“Many of those investors lost most of their money, including, in some cases, hundreds of thousands of dollars meant for retirement. SpotOption and its Partners, on the other hand, raked in millions in profits,” the SEC complaint specifies.

“SpotOption’s trading platform allegedly supported a worldwide binary options fraud,” said Jennifer S. Leete, associate director in the SEC’s Enforcement Division, in an April 19 press release.

“This action shows that the SEC will work with its foreign regulatory partners to pursue international actors who defraud US investors,” the SEC’s complaint states.

From Georgia to Kazakhstan to Israel

SpotOption was founded by Malhaz Pinhas Patarkazishvili, also known as Pini Peter, aged 45, an Israeli who was born in Georgia.

In 2005, Patarkazishvili was convicted of fraud, forgery, and money laundering in Israel’s largest-ever bank theft, the Etti Alon Trade Bank affair. Alon embezzled more than NIS 250 million — $70 million — and served 14 years in jail. Patarkazishvili, working at a money changing store, Moneynet Allenby, cashed some of the bank checks that Alon had embezzled.

Patarkazishvili was sentenced to a year in jail for the offenses, unsuccessfully appealed to Israel’s Supreme Court, but ultimately had his prison term commuted to six months’ community service by then-president Shimon Peres.

After having his sentence commuted, Patarkazishvili became the CEO of a high-tech company, EIM Telecom, that had won a lucrative contract to develop a telecommunications network in Kazakhstan. That September, Patarkazishvili was quoted telling Israel’s Globes business daily that the deal, which he had personally signed with Kazakhstan’s communications minister, was expected to bring in $10 million a year. “This is the first time that an Israeli company is responsible for the overall development of an internal and external communications network of a country in Central Asia,” he said.

He founded SpotOption in 2009, shortly after he bought a Kazakh gambling machine company known as Vulkan KSI.

SpotOption eventually expanded to operate hundreds of websites, according to its own marketing material. These included BigOption, IvoryOption, Lbinary and many others.

One notable SpotOption brand belonged to a Russian binary options company called Trustforex, in which Patarkazishvili’s father was until recently a business partner with Igor Gorbenko and Boris Spektor.

Gorbenko and Spector are longtime business partners of Yevgeny Prigozhin, who has been sanctioned by the US Treasury Department, for operating a troll factory that interfered in the 2016 US presidential election, as well as for “malign operations in Africa and Europe,” according to an April 15 press release.

Pini Peter is a major donor to the Chabad movement, and has frequently mingled and met with prominent Israelis in the context of his donations.

He has been photographed on numerous occasions with senior Israeli politicians, including Prime Minister Benjamin Netanyahu, Benny Gantz, Gideon Sa’ar, Ron Huldai and others, in that context.

SpotOption sponsored a ceremony at Tel Aviv’s Great Synagogue in 2015 at which new Torah scrolls were dedicated; the scrolls were displayed in front of the SpotOption logo.

While Israel’s top financial regulator was working on the legislation to outlaw all Israeli binary options firms and the Prime Minister’s Office was urging a worldwide ban on the fraud-blighted industry, the Israeli government secretively gave taxpayers’ money to SpotOption to help it expand abroad, The Times of Israel revealed in 2017.

Government grants totaling some $270,000 were handed out between 2014 and 2016, with the payments continuing even after Israeli regulators banned binary options firms from targeting Israeli customers in March 2016, a year before the Knesset banned binary options outright.

The SEC’s complaint was filed in federal district court in Nevada. The  investigation was conducted by Deborah Maisel and Jason Anthony.