American Immigrants Win Back Millions For Victims Of Massive Fraud In Israel
The Tel Aviv skyline at night. Image by wikimedia commons
TEL AVIV (JTA) — They were part of the problem. Now they are spearheading a solution.
A Tel Aviv-based startup run by young American Jewish immigrants to Israel, or olim, has taken on the largely fraudulent binary options industry centered in this country that has been estimated to generate as much as $10 billion a year. Owned and staffed in part by former binary options employees, Wealth Recovery International has used its insider knowledge to its advantage.
“Because I worked in the industry, I understand how these companies operate,” Wealth Recovery’s co-founder Austin Smith, 33, who calls himself a one-time fraudster, said in an interview at the company’s office. “I feel a responsibility to go ahead and help people.”
In the absence of serious action against binary options fraud by Israel authorities, Wealth Recovery has helped a couple dozen alleged victims of the industry reclaim a total of more than $4 million. The company has grown rapidly since it was founded in early 2016, in some cases by helping victims of its own employees.
The binary options industry has emerged in Israel over the past decade. According to The Times of Israel, which has been investigating the industry for nearly a year, more than 100 Israel-based companies have defrauded hundreds of thousands of people worldwide of billions of dollars – and been blamed for at least one suicide.
Binary options websites have allowed clients to place short-term bets on whether a commodity will increase or decrease in value. In most cases, though, the companies behind the websites have been suspected of rigging the game to take all or nearly all of their clients’ money. Posing as investment houses based in financial capitals like London, they have used aggressive sales tactics to maximize deposits and various ploys to avoid withdrawals. Their identities have been obscured by complex corporate structures that span multiple international jurisdictions, including tax havens.
Thousands of olim from the United States and around the world have played a role in helping the binary options companies target foreigners in their native languages. Former employees of several of the companies said more than half their co-workers were olim, and most of them were Americans. Money has been a major draw, with the olim often earning several times what they could otherwise hope to in Tel Aviv, one of the most expensive cities in the world.
“David Roth,” a 24-year-old from Southern California, asked to go by the pseudonym he has used as a Wealth Recovery salesman to protect himself from retaliation by binary options companies. After making aliyah several years ago and serving as a combat soldier in the Israeli army, he worked briefly at a fast food restaurant in Tel Aviv, making about $1,000 a month before finding work in binary options. In a good month as a salesman, Roth brought in more than $30,000, mostly on commission.
“It’s a hard country, and I’m here alone. I was trying to build myself something to fall back on,” he said. “Working my ass off at a burger place for 4-5,000 shekels a month max wasn’t getting me anywhere. The problem is that working in binary made me a terrible person, and it eventually broke me.”
Former binary options employees have described the industry’s culture as depraved. Trained to lie and apply maximum pressure, salespeople have worked late into the night to hard-sell clients in foreign time zones. Managers have encouraged them to have no mercy, whether the target was a pensioner or a cancer patient.
At the central Tel Aviv office of Numaris Communication, a one-time provider of sales and other services for the BinaryBook brand, Smith and another former employee described a vulgar and hard-partying culture straight out of “The Wolf of Wall Street.” After winning a big deposit, salespeople played the video of a song adapted from an episode of the animated TV comedy “South Park.” Together the office would sing the chorus: “And, it’s gone,” referring to the client’s deposit.
BinaryBook, which has faced legal action in Britain, did not respond to multiple interview requests. Wealth Recovery and the St. Louis-based Hamm Law Firm have begun preparing a class action lawsuit against another service provider for the brand, Ukom, on behalf of 120 American clients.
In February, weeks after law enforcement officials from North American and Europe held an emergency meeting on binary options fraud in the Hague, the FBI said it was investigating the industry around the world. The United States in 2013 had outlawed the marketing of binary options to its citizens, except on a handful of regulated exchanges.
Last spring, Israel allowed binary options companies to operate in the country as long as they refrained from targeting its citizens. In August, Jewish Agency head Natan Sharansky urged the government to shutter the “repugnant, immoral” industry. And in October, Prime Minister Benjamin Netanyahu’s office called for a worldwide ban on its “unscrupulous” practices.
Earlier this year, the Knesset’s State Control Committee held two hearings on the government’s failure to deal with binary options fraud. Despite arguments by binary options advocates that entirely shutting down the industry could hurt Israel’s economy and encourage terrorism, the hearings resulted in draft legislation that would do just that.
Michael Oren, a former Israeli ambassador to the United States and current deputy minister, called binary options a threat to the Jewish state’s international standing and urged olim to steer clear of the industry for their own sake and that of their adopted country. He said the Knesset should launch an investigation into the industry.
“The binary options scheme could be ruinous for Israel’s foreign relations,” he told JTA. “I would tell olim: Your moral standards and Israel’s interests should deter you from engaging in this type of activity. There’s enough work in other fields.”
Wealth Recovery has provided alternative employment for a small but growing number of American olim, most of them in their 20s and 30s. Smith and his two co-owners made aliyah, or immigrated to Israel, from the United States, as did most of the people who work for them. Nearly half the staff, including Smith and another co-founder, came from binary options companies. Others chose to work at Wealth Recovery rather than enter the industry.
Former binary options employees have been essential to Wealth Recovery’s success. Their fluency in English and familiarity with the scams have prepared them to pitch the company’s services. They have used some of the same marketing and sales tactics for Wealth Recovery as they did at their previous jobs, including going by pseudonyms. But they said the motive for that has changed from deceiving the client to hiding from the binary options industry, which has threatened those who cross it.
“I have nothing to hide from clients anymore. I’m helping them here,” Roth said. “But it’s really easy for people from binary to call us, and a lot of the managers of these companies are serious criminals. You don’t want to mess with them.”
Smith, whom clients have known as Mitch Williams, for the first time opened up about his company under his real name for this article as part of an effort to position himself as a public opponent of the binary options industry, which he said he hopes will offer him another kind of protection.
“I want to distinguish myself from all the fraud around me. I want people to know what they should look for in a legitimate recovery company,” he said. “Hopefully binary companies will think twice about coming after me once my name is in the newspaper.”
Smith has also begun investing more heavily in advertising and public outreach. He will speak at an anti-fraud conference in Miami later this month, and will sponsor minor league NASCAR driver Stephen Young during a series of races in August. Young gave Wealth Recovery a discounted rate because he was scammed by binary options companies in the past.
Former binary options employees, whom Smith said often require some “deprogramming” when he hires them, have also been an asset to Wealth Recovery when it comes to gathering information — the company’s stock in trade. Wealth Recovery has gathered intelligence by developing sources within the binary options industry and searching public records. Yet to have one of its cases tried in court, the company has relied on what Smith called a “shock and awe” approach to pressure more than $4 million in settlements.
“The key is to go after little people – the ones who are working the phones and actually taking the money,” he said, “They’ll freak out and pressure their bosses to settle, or they’ll turn against the company they work for.”
Israeli attorney Nimrod Assif, who has represented alleged victims of binary options fraud and advocated for immediate government action against the suspected perpetrators, said the recovery industry has fraudulent elements, though he could not comment on specific companies. Assif recommended victims come to experienced lawyers like him, who know how to build a court case using admissible and legally obtained information, but said that what is most important are results.
“This recovery industry is a bit problematic,” he said. “First, this is legal work and people need to be licensed lawyers in order to represent victims in this country. Second, I know for a fact that there are fraudsters also in this industry.
“I will say if you put aside ethical issues, the No. 1 priority is to get recovery for victims. So if companies are able to do that, it’s good.”
Last month, the U.S.-based Financial Industry Regulatory Authority, the securities industry’s own watchdog group, issued a warning about what it called binary options follow-up schemes and “recovery scams.”
‘Is there anybody doing this?’
Raised in upstate New York by what he called “loving Reform Jewish parents,” Smith has long been drawn to fraud. He spent much of his 20s in South Florida running successful scams involving light bulbs, child actors and timeshares, as well as selling subprime mortgages, between stints in rehab for heroin addiction. He made aliyah in 2014 to study at the Orthodox Aish Hatorah yeshiva in Jerusalem, hoping religion would help him live a more virtuous life.
But after a couple months, Smith moved to Tel Aviv and found a job in binary options, gradually moving up in the industry and learning how it really operated.
Smith’s account of how he turned against the industry has become a kind of founding myth at Wealth Recovery. The tale goes that after reaching a breaking point at Numaris, the second of two binary options companies he worked for over the course of a year, in January 2016 he took a despairing road trip to northern Israel. On the way back from a visit to the gravesite of his favorite Jewish sage, Rabbi Moshe Haim Luzzatto, he picked up a haredi Orthodox hitchhiker and ended up celebrating havdalah, the ceremony that ends Shabbat, with him and his large, impoverished family.
At the end of the night, the hitchhiker blessed Smith, predicting he would do something unprecedented for the Jewish people. The experience had a profound effect, and when Smith arrived back in Tel Aviv that evening during a fierce windstorm, the idea for Wealth Recovery came to him with the slam of the gate of his apartment building.
“Like a ton of bricks, the idea hit me,” he recalled. “I thought: What happens if I get the money back for the people it was taken from? Is there anybody doing this?”
Days after his epiphanic trip, Smith quit Numaris, and in February 2016 he flew home to start Wealth Recovery in his parents’ basement. His first recruit was co-owner Lee Eller, 26, with whom he had worked at Numaris. Having for years bounced between binary options companies while pursuing a career as a musician in Israel, Eller had recently returned home after her mother sustained a brain aneurysm. Eller, a believer in astrology and the metaphysical power of thought, among other spiritual philosophies, blamed her binary options work for the illness.
“I believe I caused my mom to get sick,” she said. “My whole existence was people’s pain, so I brought a lot of pain into my life. I think you get more of what you ask for, and I was inadvertently asking for that.”
Smith and Eller’s big break came quickly in the form of Steve Koel, 52, a Northern Californian businessman whose BinaryBook account they had helped manage at Numaris starting in November 2015. Within weeks of Wealth Recovery’s founding, a source inside Numaris told them managers were about to close out Koel’s account, in which he had deposited nearly $1.5 million – the vast majority of his life savings.
Koel was separated from his money by a rotating cast of characters who posed as London-based brokers. He initially saw large returns, some of which were even paid out to him, but then his account managers began making seemingly senseless losing trades. Koel, a divorced father, said he missed warning signs that he was being defrauded, like the lack of documentation of his transactions, in part because he was intent on earning money to pay for treatment for his youngest son, who had recently been debilitated by a brain aneurysm.
“You have to understand, it was a perfect storm in my life. The climate around me was very sad, and the scammers fed on that,” he said. “To be honest, there was some greed on my part as well. But then things started to go awry.”
When Smith called in March 2016, Koel said, “I didn’t feel I had much choice but to say yes.”
With the help of Haggai Carmon, an Israeli litigator and investigator who for decades worked for the U.S. Justice Department, Wealth Recovery pressured Ukom, based in the north-central Israeli city of Caesarea, into returning all of Koel’s money in April 2016. Carmon, also the author of best-selling espionage novels, took about 10 percent up front, and Wealth Recovery collected 20 percent on the backend, which has remained its standard rate.
Koel was overjoyed and still vouches for Wealth Recovery to potential clients.
“These guys were white knights, coming in with a plan, attorneys on board and an international network of information,” he said. “Mitch was a source of total therapy for me as I worked through this. Mitch is a great guy. Mitch can stay at my house any time.”
Asked about his impression of Israel, which he has never visited, given his experience, Koel said, “It’s not an Israeli or a Jewish thing, it’s a people thing. Plus, it was Jews who helped me in the end.”
Smith and Eller used the windfall from Koel’s case to pay off business loans and move back to Tel Aviv in July 2016. They brought aboard a third co-owner, Smith’s Orthodox Jewish cousin from California who asked not to be identified, and started hiring other employees. In March 2016, Wealth Recovery moved into its current office, and several months later teamed with a local firm, Birman Law, which moved into an adjoining office.
This month, Wealth Recovery and Birman Law took the case of a Hong Kong woman who “invested” about $10 million with a binary options brand called Options XO starting in February 2015. In one month last summer, the woman, who asked not to be identified, deposited $2.75 million through a wire service in near-daily installments of $125,000. Over a cycle of escalating losses, she said family and friends had lent her about $8 million in an effort to help her earn back her initial deposit.
“The cost is not just money. I lost my peace of mind. I’m very jumpy. My health has deteriorated,” she said. “The burden of having to repay my family is weighing on me every day.”
When her account tanked again last month, the woman said her supposed brokers began pressuring her to deposit even more money, but she had run out of resources. Now living off help from her family, she said, the woman began looking for lawyers to help her negotiate with Options XO. Only after Wealth Recovery showed her a presentation allegedly outlining Options XO’s business structure and exposing the identities of its employees did she understand that she had been victimized by an alleged scam, the woman said.
“My major downfall was I didn’t realize the people at Options XO were bad people and it was all fake,” she said. “It was hard to find someone who understands binary options. Lawyers would say just pay this amount and we’ll figure it out. Wealth Recovery and Birman Law understood my situation right away and were very responsive.”
Tomer Levi, the CEO of Toro Media — the service provider for Options XO — answered a phone call from JTA and said, “I don’t know what is Options XO, and I don’t know what you’re talking about.” Then he hung up.
About an hour later, Levi’s lawyer called, but said he could not comment on Options XO because he does not represent the company. The attorney, Alon Mizrahi of the Tel Aviv firm FWMK, said he had been hired by Toro Media.
“Options XO is not our client,” he said. “Options XO is a broker in a different country, and we represent a different client. It’s a different legal entity.”
Mizrahi declined to answer whether Toro Media had a relationship with Options XO. But he said he suspected Wealth Recovery and Birman Law were part of a single group that was illicitly accessing information about binary options companies and using it to “threaten and slander” Toro Media and others. He asked to be emailed further questions so he could check on the answers, but did not respond when sent the email.
“They were not amateurish.”
Various opponents of the binary options industry agreed that Wealth Recovery is on the right side of the fight. Carmon said Smith and Eller introduced him to the industry when they worked together on Koel’s case.
“As former insiders, they knew how to explain it to me and provide me with pertinent information,” he said. “They were not amateurish. They gave me an introduction that lasted more than four months.”
In February, Israeli lawyers Carmon and Assif started StopScams.com to represent alleged victims of binary options fraud. Like Wealth Recovery, Carmon said the group targets individuals rather than companies, which can disappear, and thus far has settled out of court to get quick results for clients.
Yossy Haezrachy, a partner at the Friedman-Haezrachy law firm in Tel Aviv, said the investigative chops of companies like Wealth Recovery make them an asset both to victims of binary options fraud and to lawyers like him who represent such people. His law firm has filed several cases on behalf of alleged victims with Israeli courts, which Haezrachy said have never ruled on such a case, as far he he knows.
“These [recovery] companies are really a blessing,” he said. “Sure they take a cut like any business, but they give an address to victims who have nowhere else to turn and they dig up information that lawyers can’t.”
Haezrachy said his law firm has been the target of “vivid threats” and badmouthing by binary options companies, so he understands Wealth Recovery employees’ desire for anonymity. But echoing many others, he said only state action would ultimately shut down the industry.
“At the end of the day, the government is going to have to clean up this mess. And I’m sure it will,” he said. “Within two years, there won’t be any binary options companies in Israel.”
As someone with intimate knowledge of how fraud works, Smith said he sees things differently. He predicted binary options companies would survive by moving to different countries and industries, as they have already started doing in anticipation of a crackdown in Israel.
Wealth Recovery has made plans to follow them. Last week, Smith visited Cyprus to look into setting up an office there, and he has been building relationships with lawyers around the world. At the same time, Wealth Recovery has begun investigating alleged fraud in Israel’s multibillion-dollar diamond industry.
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