/ 13 January 2017

The unethical sellers of dreams

Banc de Binary was once licensed in Belize and now operates out of Cyprus
Banc de Binary was once licensed in Belize and now operates out of Cyprus

It is, quite simply, a scam. Adam Nujidat, a short-lived employee of an Israeli binary trading firm, testified before Israel’s Knesset last week.

A committee of the Israeli Parliament is investigating the hundreds of binary option trading platforms on the internet, an industry estimated to be worth billions of dollars in Israel.

At a hearing Nujidat said it was “made clear to me that ‘no client makes money — we’re selling dreams to people overseas’,” as translated by the Haaretz newspaper.

The Knesset and Nujidat would not identify which company he was employed by.

With binary option trading, “investors” are asked to predict the movement of currency cross-rates, for example the value of the rand to the dollar, minutes (and sometimes seconds) into the future, in a zero-sum bet. If the player correctly predicts the rand will strengthen, they win money. If the player gets it wrong, they lose the entire bet.

Nujidat’s revelation came as little surprise to a South African investor, though it did provide her with some small, if grim, satisfaction in confirming her misgivings.

“I knew it,” Linda said when told of the Israeli hearing this week. “I always knew it.”

The Mail & Guardian is withholding Linda’s identity to protect her interests.

In October Linda opened an account with Banc de Binary and handed the company $500, the equivalent of a little under R7 000, on the basis of a promise that she stood the chance of vast profits without any knowledge of investment.

Banc de Binary is believed to be one of the largest binary options trading platforms on the internet.

Linda’s trouble started almost immediately, with promises such as an additional credit of $500 free trading credit not being kept.

Every interaction with the company, mostly by way of call centres, just confused matters, or ended in abuse. “Each question I asked I got screamed at as if I was stupid and did not understand them,” Linda said in November. “It’s like I’m a nuisance to them.”

Linda’s experience accords with investigations in Israel. Over the course of the past month recent immigrants to the country have spoken of lucrative commissions tied to pressure-sales tactics that are, at best, unethical.

Trainers told call-centre agents to leave their morals at the door, one agent said.

Banc de Binary is a cross-border operation, once licensed in Belize until that country yanked its accreditation, now apparently operating under the flag of Cyprus.

“In reality, the Banc de Binary affiliates are incorporated in Cyprus, Israel and the Seychelles,” an American judge found in 2014.

The courts believe the owner of at least half the web of companies of which Banc de Binary consists is Oren Shabat Laurent, an American and Israeli citizen now in his early 30s “who lives on the outskirts of Tel Aviv”.

Laurent could not be reached for comment.

It was not clear whether Banc de Binary operates out of Israel but a number of similar companies do, by one survey at least 90 of them in 2014, employing perhaps as many as 15 000 people — even though their product is not legal in Israel itself.

This is the dark side of a “start-up nation”, one analyst told the Knesset committee, which encourages online businesses that bring in foreign revenues, in this case from foreign “investors” such as Linda.

The results, the committee was told, include anti-Semitic sentiment because the country was perceived to harbour, and perhaps even actively encourage, scams.

Binary options trading is unlawful in Israel and is yet to be regulated in other parts of the world. It may not necessarily be a scam but it is insanely risky.

It is probably no accident that “investors” are often lured with advertisements on gambling and casino websites.

The way in which the industry promotes itself, on the other hand, is outright deceptive.

In December Banc de Binary was heavily advertised on South Africa’s largest local news website, News24, with promises of stories of South Africans who had struck it rich. Clicking on those links took readers to “24BusinessMag”, a fake publication not affiliated to News24 registered by way of an anonymising service in Panama.

Interestingly, this independent publication had very high praise indeed for Banc de Binary.

Anyone not satisfied with 24BusinessMag’s glowing take on Banc de Binary would have an uphill task finding other opinions. This week a Google search for the name in South Africa produced a list of paid-for results promising clear answers. “Is Banc De Binary Safe? Read Here What We Found.” “Is Banc De Binary a Scam? Check Before Signing Up.”

The websites on the other end of those links had universally positive things to say about Banc de Binary. All of them also linked to Banc de Binary using mechanisms that allow for referral bonuses to be derived.

But the Mail & Guardian was unable to ascertain whether it was Banc de Binary that published these adverts. No local representatives could be identified.

Linda said she had spent a lot of time researching Banc de Binary, and had landed up at exactly such a review site. The review, she said, listed it as “one of the best companies to sign up with”. So she did. She has been unable to retrieve her money ever since.

With “investments” often treated as credit card purchases or foreign remittances, sometimes through blatant front companies in third-party jurisdictions, it is impossible to tell how many South Africans have given money to Banc de Binary and its peers. Anecdotal evidence suggest that the amount is significant, and recent events suggest it is irretrievable.

Rumours that Banc de Binary would be shutting down started to circulate this week among those who watch the industry, with one specialist outlet, Finance Magnets, quoting an anonymous company official as saying: “I don’t see how we can continue operating under such scrutiny and public image.”

Whether or not that is true may not matter in the longer run. The Knesset intends to shut down the binary trading business in Israel, Yigal Amitai, spokesperson for that legislature’s state control committee, told the M&G. “We will change the law,” he said. “It is a process, but it is started.”

Further hearings and a clear roadmap are due in coming months.