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In The Courts
Maryland Jury Convicts Former CEO of Israeli Company for Role In $145 Million Binary Options Fraud
Lee Elbaz, an Israeli citizen and former CEO of Israel-based company Yukom Communications (Yukom), has been found guilty following a three week jury trial in Maryland for her part in orchestrating a global scheme to defraud tens of thousands of investors via the fraudulent sale of $145 million worth of financial instruments known as "binary options." Elbaz, employed as a team leader overseeing sales agents at Yukom in mid-2014 before being promoted to the company's CEO, was convicted on three counts of wire fraud and three counts of conspiracy to commit wire fraud in connection with the scheme. The trial followed her arrest at New York's JFK airport in September 2017.
The scheme related to sales, marketing and investor retention services provided by Yukom to two Web-based businesses, BinaryBook and BigOption, both of which fraudulently sold and marketed binary options to customers globally, including in the U.S.. Binary options involve speculating on the value of a financial asset such as currency or stock at a certain time of day — essentially betting on whether the price will rise or fall within a set period. In return for investing, option holders were promised that they would receive either a pre-determined amount of cash or nothing, depending on the accuracy of their prediction.
According to the evidence presented at trial Elbaz, in her role as CEO, and a number of co-conspirators fraudulently induced investors to deposit funds by falsely guaranteeing profits while misrepresenting expected returns and the nature of financial incentives being received by Yukom representatives. In scripted passages to be used with customers, Yukom sales people claimed to be representing the interests of investors ("I only make money when you are profitable") — when in fact sales commissions were based on net investor deposits and Yukom only made money if their customers lost money. Under Elbaz's supervision, sales representatives also made false statements about investors' ability to withdraw funds by relying on deceptive use of made-up benefits referred to as "bonuses," "risk free trades," and "insured trades."
When interacting with investors Elbaz used the alias "Lena Green" and approved the so-called "stage names" of other employees. Elbaz trained and encouraged Yukom sales people representing BinaryBook and BigOption to pretend they were in London rather than a call bank in Israel, including by providing phone numbers with UK area codes. A call script included the line for investors: "As you can probably hear on my voice, I'm not British originally, I'm actually from XXX and I moved to London XXX years ago to complete my Master's degree in Economics from XXX." Elbaz, who testified towards the end of the trial, told jurors that she believed these misrepresentations were not illegal as they didn't relate to the nature of the product or service being sold.
The case concluded after over a week of jury deliberations; during which one juror was replaced after disclosing to the judge that he had overheard negative comments about Elbaz while in public outside of court hours. The judge denied a request by Elbaz's attorney to declare a mistrial, instructing jurors including the new alternate to start their deliberations "from scratch." Elbaz, one of 15 defendants in the case and the first to be tried, will be sentenced in December, with each count carrying a maximum of 20 years in prison. Elbaz's attorney has said his client may appeal.
"We are committed to prosecuting financial fraud, even when perpetrated from abroad," said Assistant Attorney General Brian A. Benczkowski of the Justice Department's Criminal Division following the verdict. Acknowledging the international focus of this prosecution, Acting Assistant Director in Charge of the FBI's Washington Field Office, John P. Selleck also stated: "We would not be successful in our work if not for our partners around the world."
A further five defendants have already pleaded guilty and are awaiting sentence, including two former Yukom sales people who testified in Elbaz's trial after agreeing to cooperate with prosecutors. Nine other defendants were separately indicted in February, including Yukom's former owner, Yosef Herzog. The U.S. Commodity Futures Trading Commission has since also filed a civil enforcement action in Chicago against a number of binary option firms and related individuals including Yukom Communications, BigOption, BinaryBook, Lee Elbaz and Yosef Herzog. Dealing in binary options was made illegal in Israel in 2017, where the binary options industry had previously thrived through the use of unregulated websites targeting buyers around the world.
— Juliet Gunev, Mayer Brown
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