Joshua Cartu, Jonathan Cartu and David Cartu, brothers and Canadian-Israeli dual citizens, were charged on Monday by the Ontario Securities Commission (OSC) for defrauding over 700 Ontarian investors out of over $1.4 million over a period of about four years.
To hide the scheme from investors, the brothers lied about the location of their operations, used aliases and hid their connection to payment processing companies they owned and operated.
The brothers' online binary options business was headquartered in Israel and offered binary options to investors around the world, according to the enforcement staff of the OSC. The brothers also ran two companies in the UK and Ireland to facilitate the processing of payments by investors.
The companies run by the brothers were not registered with the OSC and didn't file with the commission, thereby engaging in unregistered and illegal distributions of securities, contrary to the law.
To operate the business, the brothers established Tracy PAI Management Limited, a call center located in Israel. Staff were hired, supervised and paid by the brothers to conduct a number of activities to trade and further the trade in the brothers' companies.
The brothers face a number of penalties and fines of up to $1 million for each breach of Ontario securities law, court and investigation costs, and may be ordered to release any money received as a result of the non-compliance with the law, along with being banned from operating in Canada.
On Thursday, the US Commodity Futures Trading Commision (CFTC) charged Israelis Tal Valariola and Itay Barkak and Miami-resident Daniel Fingerhut with binary options and cryptocurrency fraud which obtained over $20 million in commissions over about a five year period.
Fingerhut worked with the Florida corporation Digital Platinum, Inc., the Israeli company Digital Platinum, Ltd. (DPL) and the Bulgarian company Huf Mediya Ltd., as well as the operators of the three companies, Valariola and Barak, to carry out the fraud.
Beginning in at least October 2013 and continuing through August 2018, the three created fraudulent marketing materials which promised "astronomical profits with no risk of loss." Over 59,000 customers opened and funded trading accounts through the marketing campaigns.
The three advertised fake trading performance used binary options and digital asset trading software and systems. In marketing videos, actors, often posing in front of props such as mansions and private jets, would claim that they had become rich by trading.
Valariola and Barak were charged with willfully aiding and abetting All In Publishing LLC's (AIP) fraudulent binary options affiliate marketing scheme. AIP's binary options marketing scheme involved at least 24 fraudulent binary options campaigns, which DPL willfully aided and abetted by, among other things, providing fraudulent sales videos for AIP's campaigns, supplying the trading systems that they knew didn't operate as marketed and managing the funds resulting from their campaigns.
Fingerhut intentionally or recklessly created and/or disseminated solicitations that he knew included false or misleading statements about the systems for at least 20 of AIP's campaigns.
Eleven other individuals connected to AIP have been charged by the US Securities and Exchange Commision and the CFTC in the past. In December, the SEC imposed over $60 million in fines and penalties on three US-based marketers connected to AIP. Hundreds of millions of prospective customers viewed or received the marketing material and about 100,000 customers opened binary options trading accounts as a result, funding those accounts with at least $25 million in initial deposits.
Fingerhut is also charged with making materially false or misleading statements to CFTC staff, including while under oath, in apparent attempts to hide the extent of his role in the fraud.
The CFTC is seeking full restitution to the defrauded individuals, disgorgement of earnings from the fraud, civil monetary penalties, permanent registration and trading bans and permanent injunctions against further violations of the Commodity Exchange Act and CFTC regulations, as charged. Victims may not recover all money lost as those being charged may not have sufficient funds or assets.
The Israel Securities Authority, FBI, Securities and Exchange Commission and the US Department of Justice cooperated on the case.
Attorneys Ruti Litvak and Rami Keren, who represent Valariola and Barak, told Israeli business daily Calcalist that, "this is a civil suit that was filed by the US and the connection between it and Tal Valariola and Itay Barak is immaterial. There are no restrictions on Valariola and Barak's business activities and it continues as usual."
Binary options involve placing a bet on whether the value of a financial asset – a currency, commodity or stock – will rise or fall in a fixed time, sometimes as short as a minute.
The Knesset voted to ban firms from selling binary options overseas by online trading in October 2017. Israeli regulators say they have received many complaints regarding losses binary option traders in various countries have suffered. Israel had already banned the domestic sale of binary options last year, the first country to do so.
Reuters contributed to this report.