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

The U.S. Securities and Exchange Commission charged the Israeli-based binary options trading company Spot Option with deceiving U.S. investors out of more than $100 million.

The regulatory agency announced the move Monday, saying it filed its complaint in a Nevada federal district court Friday.

The SEC complaint names Spot Option, now called Spot Tech House, and former executives Malhaz Pinhas Patarkazishvili (aka Pini Peter), 45, and Ran Amiran, 50.

Patarkazishvili owned 94% of Spot Option shares until March 2017, when he transferred ownership to his wife, Limor Patarkazishvili. Amiran owned 2.5%.

The firm and the executives sold binary options online to U.S. customers.

“Spot Option’s trading platform allegedly supported a worldwide binary options fraud,” said Jennifer S. Leete, associate director in the SEC’s Enforcement Division, according to an SEC press release. “This action shows that the SEC will work with its foreign regulatory partners to pursue international actors who defraud U.S. investors.”

The complaint concerns company actions from April 2012 to August 2017.

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Spot Option developed nearly all the products and services needed to sell binary options online, including a proprietary trading platform, and licensed them to partners who did the selling, the SEC says.

“As alleged, investors were not told that the defendants’ white label partners were the counter-parties on all investor trades, and thus profited when the investors lost money,” the SEC stated.

“To ensure sufficient investor losses and make the scheme profitable, Spot Option allegedly, among other tactics, instructed its partners to permit investors to withdraw only a portion of the monies the investors deposited, devised a manipulative payout structure for binary options trades, and designed its trading platform to increase the probability that investors’ trades would expire worthless,” it stated.

Most investors lost their money within five months, the SEC stated.

In addition, Spot Option taught, guided and encouraged its partners to market its platform as a way to make a lot of money quickly, the SEC stated. Customers who had lost some of their money were manipulated via fictitious bonuses in order to encourage them to keep using the platform and keep losing money, the regulator stated.

Binary options are a financial tool that enable investors to guess how an asset’s price will change over a given period. If the investor guesses correctly, they profit; if they guess incorrectly, they lose some or all of their money.

At one point Israel had 20-150 binary options companies with more than 15 employees each, with daily turnover of $5 billion. Eventually the industry developed a reputation for defrauding customers. The companies that developed the programs were suspected of participating in the theft and fraud.

Spot Option was the largest software developer for the industry, at one point controlling over half the market. Spot Option never had its own trading platform; it merely provided the technology.

At its peak, Spot Option had over 300 customers for its trading platform software and more than 300 employees in offices in London, Hong Kong, the Middle East, Europe, Asia, Latin America and Australia. It recorded net profit of $17 million-$18 million in 2015 and 2016 and it distributed $9.6 million to shareholders each year.

The SEC also filed complaints against companies that used Spot Option’s platform, including Banc de Binary, Beserglik and Senderov.

In a written response, Patarkazishvili and Amiran said they had not yet received formal notice regarding the matter and would respond after reviewing the material. “We have strong faith in God and that everything is for the best. Spot Option was a principled software developer with the best people possible employees and that complied with the highest standards in terms of the law. We served more than 600 customers around the world and we had offices in five countries,” the statement said, in part.

“Our systems underwent inspection and approval from the most stringent authorities in Japan, Europe, Australia, Russia and the Untied States. Spot Option was a technological platform company that supplied a platform for brokers around the world. Spot Option is currently in the process of shutting down and no longer works in software development. We hope that God will bring good news for all.”