At first I could not believe what he told me, but I soon learned that over the past 10 years, in the absence of government concern or effective law enforcement, a shameful scam industry has been allowed to fester and grow in Israel to the point where it rakes in hundreds of millions, if not billions, of dollars every year, and has probably claimed millions of victims worldwide.
What are binary options?
Binary options, as well as retail forex, are legitimate financial products when offered by legitimate companies. However, the majority of binary options firms operating out of Israel, as well as many of the country's retail forex firms, defraud their customers, systematically and cynically.
A binary option is an option on a stock or commodity in which the trader must guess whether its value will go up within a certain time period, say 60 seconds. If the trader is correct, she wins a percentage of the amount traded, say 85 per cent. If she guesses wrong, she loses most or all of the money placed on that particular trade.
In fraudulent binary options companies, "brokers", who speak to their clients over the phone using aliases, frequently neglect to tell the client that the company earns money when they lose. These "brokers", who rarely have an education in finance, do not typically tell the client they are calling from Israel but say they are in London or Toronto. The vast majority of binary options clients lose some or all of their money. France's Autorité des Marchés Financiers has estimated the figure at close to 100 per cent, for both regulated and unregulated firms. Ex-employees of binary options companies have estimated the figure at 96-99 per cent.
Many binary options companies will redistribute about 10 per cent of the money they take to those clients who secure card refunds (via the normal credit card fraud protection schemes) or those who seem the most doggedly determined to complain to law enforcement authorities or sue the company.
Statistically, most clients trade away their deposits (the cash placed in a trading account) eventually, but that is not enough for fraudulent binary options firms, many of which also rig their technology platforms to make clients lose trades, as well as refuse to pay out to clients who "earn" money on the computer screen.
This is where the companies' Israeli location becomes useful (many, but not all binary options brokerages are located in Israel).
Once a broker decides they have got as much money as they can out of a client, they will often "disappear", blocking the client on Skype, refusing to take their phone calls or locking the client out of their trading account.
Defrauded clients soon realise they do not know the real names or locations of the people they entrusted with their money. Some have turned up at the London address listed on a website only to find nothing there.
What is being done?
This industry is not new. It has been operating with impunity from Israel for seven to 10 years.
Insiders have told the Times of Israel that much of the industry is controlled by organised crime syndicates, which traditionally controlled illegal casinos in Israel and received a huge boost in revenues and influence when the internet enabled them to peddle gambling to customers abroad.
In this version of events, binary options is a "perfected" version of crooked online gambling, in which clients are not even told they are gambling, the trades are rigged, and trusting clients, who would never gamble away their life savings, are cajoled into "investing" those savings in binary options platforms.
The Israel Securities Authority says it knows about the fraud, but that it is not within its mandate to stop it. The Israeli police have made a negligible number of arrests, usually at the behest of foreign governments such as France or the US.
But there are rumblings of protest in government circles. MK Michael Oren recently described exposés of Israel's binary options industry as "very, very disturbing" and potentially "threatening Israel's legitimacy".
Jewish Agency chief Natan Sharansky told the Times of Israel that Israel's binary options industry is "morally repugnant" and urged new immigrants to steer clear of jobs in the field.
It goes without saying that this billion-dollar industry is antithetical to everything Judaism stands for. According to Rabbi Meir Schweiger of the Pardes Institute of Jewish Studies in Jerusalem, it violates the basic Torah tenet of, "do not place a stumbling block before the blind". In other words, do not take advantage of someone's lack of knowledge to tempt them to do something that will be harmful to them.
And yet, the Israeli government has still not stopped the fraud, and thousands of people shamelessly continue to go to work every day scamming strangers out of their money, perhaps imagining they will never be called to account.
The Jewish view, says Rabbi Schweiger, is that no one ultimately gets away with it.
"At the end of the verse 'before someone who is blind, do not place a stumbling block; it says 'and you shall fear your God, I am the Lord.'"
During Rosh Hashanah and Yom Kippur, Jews traditionally repent their sins. Rabbi Schweiger points out: "It's very easy for people to fool others and themselves into thinking that they had good intentions and were not being deceptive or misleading.
"That's why the Torah says: 'Fear God.' You can fool everyone, but not God, who knows what you think, and will hold you accountable."
