Banc De Binary was an Israeli financial firm with a history of regulatory issues on three continents.
On January 9, 2017, the company announced that it would be closing due to negative press coverage and its tarnished reputation. The firm also surrendered its brokerage license with the
Cyprus Securities and Exchange Commission
The Cyprus Securities and Exchange Commission, ( gr, Επιτροπή Κεφαλαιαγοράς) better known as CySEC, is the financial regulatory agency of Cyprus. As an EU member state, CySEC's financial regulations and operations comply with ...
(CySEC) removing its ability to legally trade in the
European Union
The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...
. Its 2014 revenues were reported as $100 million.
It sold
binary options
A binary option is a financial exotic option in which the payoff is either some fixed monetary amount or nothing at all.Breeden, D. T., & Litzenberger, R. H. (1978). "Prices of state-contingent claims implicit in option prices". ''Journal of Busin ...
on assets including
foreign exchange
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all as ...
. It was barred from accepting U.S. customers in August 2013 after being charged with several offenses by the
Commodity Futures Trading Commission (CFTC) and
U.S. Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
(SEC) in a civil lawsuit.
The company agreed to pay $11 million in restitution and fines to settle the suit.
It is also banned from accepting customers in Canada, Australia, New Zealand, and Israel.
The company operated an online trading website through which customers could buy binary options, predicting whether the price of a certain commodity will go up or down in a specific time period, as short as 60 seconds.
Banc De Binary was an associate of
SpotOption Exchange which sets the price of the option. The price of the option was not a market price, but was set by SpotOption Exchange itself.
''
The Wall Street Journal
''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'' described it as "a website that allows people to bet on the price of gold, oil or stocks".
Operations
The company allowed people to wager on changes in the price of various assets by using a pricing platform provided by an Israeli company, SpotOption, and customised by Banc De Binary. Customers did not own the asset but instead predicted whether its price would rise or fall. Banc De Binary's role was to create accounts for customers as a reseller of SpotOption's services. The company offered several kinds of options; customers could make predictions of the price of over 200 global assets including
commodities,
stocks,
indices, and
currencies
A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins.
A more general def ...
using several variations of the trading platform including classic
binary options
A binary option is a financial exotic option in which the payoff is either some fixed monetary amount or nothing at all.Breeden, D. T., & Litzenberger, R. H. (1978). "Prices of state-contingent claims implicit in option prices". ''Journal of Busin ...
,
long term options, and sixty second options,
and pairs trading. According to an advertisement for Banc De Binary, its CEO Oren Laurent was a founder of SpotOption, the firm that set the option prices.
In January 2017, Option.fm, a brand associated with Banc De Binary, was named by
BuzzFeed as the operator of a bizarre
scam
A confidence trick is an attempt to defraud a person or group after first gaining their trust. Confidence tricks exploit victims using their credulity, naïveté, compassion, vanity, confidence, irresponsibility, and greed. Researchers hav ...
known as the "Hawking code".
The scam used a
fake news site
Fake news websites (also referred to as hoax news websites) are websites on the Internet that deliberately publish fake news—hoaxes, propaganda, and disinformation purporting to be real news—often using social media to drive web traffic and a ...
, purporting to be a part of
CNN
CNN (Cable News Network) is a multinational cable news channel headquartered in Atlanta, Georgia, U.S. Founded in 1980 by American media proprietor Ted Turner and Reese Schonfeld as a 24-hour cable news channel, and presently owned by ...
, and a fake interview with
Stephen Hawking. According to the fake news site, Hawking developed a trading algorithm which would in effect transfer wealth from the top 0.1% of the world's wealthiest people to the other 99.9%. The site led to a trading site operated by Option.fm, headquartered in the Caribbean, that guaranteed trading profits using binary options. A second journalist traced the scam to Banc De Binary, which did not respond to his inquiries. Hawking's office at
Cambridge University
The University of Cambridge is a Public university, public collegiate university, collegiate research university in Cambridge, England. Founded in 1209 and granted a royal charter by Henry III of England, Henry III in 1231, Cambridge is the world' ...
denied any connection to the scam.
Oren Laurent was named in a lawsuit as the CEO of Option.fm, but he has denied it.
History
Banc De Binary Ltd., based in
Cyprus
Cyprus ; tr, Kıbrıs (), officially the Republic of Cyprus,, , lit: Republic of Cyprus is an island country located south of the Anatolian Peninsula in the eastern Mediterranean Sea. Its continental position is disputed; while it is ge ...
, along with ET Binary Options Ltd., BO Systems Ltd., and BDB Services Ltd., based in
Israel
Israel (; he, יִשְׂרָאֵל, ; ar, إِسْرَائِيل, ), officially the State of Israel ( he, מְדִינַת יִשְׂרָאֵל, label=none, translit=Medīnat Yīsrāʾēl; ), is a country in Western Asia. It is situated ...
and the
Republic of Seychelles, collectively conducted business internationally as Banc De Binary. The organization was founded by Oren Laurent, a 31-year-old (as of 2016)
American and
Israeli citizen who lives on the outskirts of
Tel Aviv
Tel Aviv-Yafo ( he, תֵּל־אָבִיב-יָפוֹ, translit=Tēl-ʾĀvīv-Yāfō ; ar, تَلّ أَبِيب – يَافَا, translit=Tall ʾAbīb-Yāfā, links=no), often referred to as just Tel Aviv, is the most populous city in the ...
. Laurent owns 50% of Banc De Binary, and was also the sole owner or 50% shareholder of ET Binary Options Ltd., BO Systems, Ltd., and BDB Services, Ltd.
He claims to have graduated from
New York University
New York University (NYU) is a private research university in New York City. Chartered in 1831 by the New York State Legislature, NYU was founded by a group of New Yorkers led by then- Secretary of the Treasury Albert Gallatin.
In 1832, th ...
and be a real estate investor in Israel.
* In an interview the company's founder stated that the firm was founded on January 15, 2009,
and that before, he had worked at "
NAF Hedge Funds" and "
Infinity Private Investment Funds", which he described as
hedge funds
A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as sho ...
in New York. In an advertisement, the company also claims to have been founded in Seychelles in 2008.
* In an interview, the company's founder also claimed that by June 2011 the company had around 20,000 client accounts,
In a 2014 court case Banc De Binary claimed that it "is a small company, with approximately 60 employees".
* An article in the ''Independent on Sunday'' described it as a "leading City trading firm", although it did not have an office in the City of London, and the address the company gave was a
virtual office space with no physical presence.
* On 7 January 2013, Banc De Binary was licensed as an investment firm by the
Cyprus Securities and Exchange Commission
The Cyprus Securities and Exchange Commission, ( gr, Επιτροπή Κεφαλαιαγοράς) better known as CySEC, is the financial regulatory agency of Cyprus. As an EU member state, CySEC's financial regulations and operations comply with ...
(CySEC).
Investment firms regulated by CySEC must demonstrate to CySEC that their activities comply with the laws of any non-
EU countries where they do business.
According to the company, its operations "outside of the European Union" are conducted by BDB Services Limited (formerly known as BO Systems Limited), which is incorporated in the
Seychelles
Seychelles (, ; ), officially the Republic of Seychelles (french: link=no, République des Seychelles; Creole: ''La Repiblik Sesel''), is an archipelagic state consisting of 115 islands in the Indian Ocean. Its capital and largest city, ...
.
* The Financial Services Register maintained by the UK's
Financial Conduct Authority states that from 25 February 2013 the company "is authorised or registered by ...
ySEC... and may be subject to limited regulation by the Financial Conduct Authority".
The company had similar licences in Germany, Italy, France, and Spain. In accordance with the
European Markets in Financial Instruments Directive (MiFID), the company "passported" into almost all member states of the EEA, even though clients based in other countries might receive nothing if the company collapsed.
* In June 2014, an advertisement on a freelance employment website offered more than $10,000 for "crisis management" of the BdB page on Wikipedia.
* In 2016, CySEC fined the locally based company (Banc De Binary Ltd). CySEC stated that "The settlement reached with BdB, for the possible violations, is for the amount of €350,000. The Company has paid the amount of €350,000". However, the
reputational damages and legal ramifications were significant for BdB's Cypriot based operations.
Closing
A company official announced on January 9, 2017 that the company would be closing because of "consistently negative press" coverage. "It's just not worth the tarnished reputation. I don’t see how we can continue operating under such scrutiny and public image," said the official.
The firm also surrendered its brokerage license with the
Cyprus Securities and Exchange Commission
The Cyprus Securities and Exchange Commission, ( gr, Επιτροπή Κεφαλαιαγοράς) better known as CySEC, is the financial regulatory agency of Cyprus. As an EU member state, CySEC's financial regulations and operations comply with ...
(CySEC) on January 9, 2017, removing its ability to legally trade in the
European Union
The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...
. The firm remains under supervision by CySEC regarding previously incurred obligations and the formal closing of the firm.
Reuters reported that the company's headquarters had been closed, the company's name removed, and a "for rent" sign placed on the building.
The ''
Times of Israel
''The Times of Israel'' is an Israeli multi-language online newspaper that was launched in 2012. It was co-founded by Israeli journalist David Horovitz, who is also the founding editor, and American billionaire investor Seth Klarman. '' reported that some industry insiders were skeptical that Banc De Binary was really closing, but was rather relocating and changing its name. One client who is owed €170,000 ($180,000) due to an August judgement from the Cyprus Ombudsman was still awaiting payment as of January 11, 2017.
Banc De Binary's bank accounts are at
Piraeus Bank Cyprus Limited, West East Bank, Credit Suisse, Wirecard Bank AG and TBI BANK EAD according to the
Australian Securities & Investments Commission
The Australian Securities and Investments Commission (ASIC) is an independent commission of the Australian Government tasked as the national corporate regulator. ASIC's role is to regulate company and financial services and enforce laws to pro ...
.
Regulatory issues
SEC and CFTC enforcement actions
On June 6, 2013, Banc De Binary was charged by both the
Commodity Futures Trading Commission and the
Securities and Exchange Commission for alleged violations of U.S. financial regulations. The CFTC warned more generally of "fraudulent schemes involving binary options and their trading platforms".
On July 30, 2013, the SEC obtained a preliminary injunction from
U.S. District Court for the District of Nevada to prevent and freeze any further trading with U.S. customers.
Charges filed on August 7, 2013, stated that Banc De Binary "may be criminally liable under the federal
RICO statute
The Racketeer Influenced and Corrupt Organizations (RICO) Act is a United States federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization.
RICO was en ...
".
Banc De Binary at first refused to appear in court in the United States for
depositions.
[''Securities & Exchange Commission v. Banc de Binary, et al.''](_blank)
/ref> Banc De Binary claimed to have an office in New York City
New York, often called New York City or NYC, is the most populous city in the United States. With a 2020 population of 8,804,190 distributed over , New York City is also the most densely populated major city in the Un ...
at Trump Tower
Trump Tower is a 58-story, mixed-use skyscraper at 721–725 Fifth Avenue in the Midtown Manhattan neighborhood of New York City, between East 56th and 57th Streets. The building contains the headquarters for the Trump Organization, as well ...
, but this was in fact a virtual office space with no significant physical presence. Trading and offering financial services to U.S. consumers without gaining a license first from U.S. regulators is illegal, as it would mean the client would have no protection. The company also claims on its site at its UK Companies House report to have an office at 1 King Street, EC2, in the City of London
The City of London is a city, ceremonial county and local government district that contains the historic centre and constitutes, alongside Canary Wharf, the primary central business district (CBD) of London. It constituted most of London f ...
, but this, like its New York City address, was a virtual office with no physical presence. Banc De Binary's UK Companies House report says that they are based in Cyprus. Despite this, Banc de Binary was brought to trial in Nevada. Banc De Binary retained the services of Snell & Wilmer in Reno
Reno ( ) is a city in the northwest section of the U.S. state of Nevada, along the Nevada-California border, about north from Lake Tahoe, known as "The Biggest Little City in the World". Known for its casino and tourism industry, Reno is the ...
, Nevada
Nevada ( ; ) is a state in the Western region of the United States. It is bordered by Oregon to the northwest, Idaho to the northeast, California to the west, Arizona to the southeast, and Utah to the east. Nevada is the 7th-most extensive, ...
, in relation to U.S. charges. This followed an earlier hearing where in the absence of any representation from Banc De Binary, charges were filed via email and by post.
Binary trading in the United States is legal, but it needs to be done through properly registered and regulated exchanges such as NADEX. Both the CFTC and SEC working filed civil suits against the company, seeking disgorgement, financial penalties and other preliminary and permanent injunctions against the company. In civil suits filed in Nevada, the SEC and CFTC allege that the company was offering off-exchange traded options to U.S. customers and unlawfully solicited US customers to buy and sell options. The CFTC and SEC's suit also alleges that it did not limit its offerings to eligible contract participants, contrary to U.S. regulations; a fully regulated broker would complete credit checks on customers to ensure that those with low finances did not trade with them. Among the allegations made by the SEC was that Banc De Binary induced people with limited funds, including one unemployed person with less than $1000, to open accounts. In response to the U.S. charges the company put out a statement that made no mention of its legal problems, but instead incorrectly implied that they were in negotiations and that they had voluntarily left the U.S. market, when in fact the SEC had taken an injunction out to stop them.
In a message posted on its website, the company stated that
On January 26, 2016, Banc De Binary agreed to a court order to pay $11 million in restitution and penalties to settle this case.[
] The settlement agreement requires Banc De Binary to refund the losses of US customers. Refunds are being handled by the National Futures Association
The National Futures Association (NFA) is the self-regulatory organization (SRO) for the U.S. derivatives industry, including on-exchange traded futures, retail off-exchange foreign currency (forex) and OTC derivatives ( swaps). NFA is headqua ...
as court-appointed monitor. Banc De Binary is permanently barred from doing any business in the United States or with US persons.
In 2018 Leonel Alexis Valerio Santana and Frank Gregory Cedeno were charged in a U.S. court for criminal fraud. They allegedly impersonated SEC employees promising to help victims of Banc De Binary's scams obtain repayment of lost funds. Instead, they allegedly defrauded the victim by taking $1.3 million more.
In July 2018, the CFTC filed a complaint against Michael Shah and his company Zilmil asking for disgorgement and fines totaling $75 million. Shah and Zilmil advertised trading schemes by Banc de Binary and 15 other companies to traders in the U.S. even though none of the companies were registered to trade with U.S. customers. Shah also offered automatic trading systems, including the "Millionaire Money Machine" which Shah knew, according to his emails, did not produce the advertised results.
European Union
Within the European Union, the company was regulated by the CySEC. On 7 April 2014 CySec announced that they had fined Banc De Binary 10,000 euros after it had "concealed material information in its request for authorization CIF submitted to the commission in August 2012, namely concealed the existence of close links between it and another company".
Investor advisories
As of October 2013, the company was rated "F" by the United States' Better Business Bureau
Better Business Bureau (BBB) is a private, 501(c)(6) nonprofit organization founded in 1912. BBB's self-described mission is to focus on advancing marketplace trust, consisting of 97 independently incorporated local BBB organizations in the Unite ...
(BBB) because 31 complaints had been made against it, including 9 of which were unanswered. The BBB report also wrote that the "site essentially allows investors to gamble on the future price of something at a point in time".
It appears on the Securities and Exchange Commission's "List of Unregistered Soliciting Entities That Have Been the Subject of Investor Complaints".
In Canada
Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
, it is listed on the Ontario Securities Commission
The Ontario Securities Commission (OSC) is a regulatory agency which administers and enforces securities legislation in the Canadian province of Ontario. The OSC is an Ontario Crown agency which reports to the Ontario legislature through the Mi ...
's ''Investors Warning List'' of "companies that appear to be engaging in activities that may pose a risk to investors".
After receiving "at least one complaint from a Québec investor who traded through Banc De Binary's platform and was unable to recover his investment", the Autorité des marchés financiers (AMF) warned investors about the company. It noted that a bonus of 50% of the opening deposit is available, but customers who accept the bonus are not allowed to make withdrawals until they have made trades equal to 20 times their initial deposit. The AMF also pointed out that, due to the "all or nothing" nature of binary options, an investor who wrongly predicts market movement will lose his entire investment. Banc De Binary is not registered with the AMF. The AMF also, like the CFTC, included a more general warning about the risk of fraud in binary options trading in the same press release.
References
External links
{{Commons category, Banc De Binary
SEC Press Release about charges filed against Banc De Binary
CFTC Charges “Prediction Market” Proprietor Banc De Binary with Violating the CFTC’s Off-Exchange Options Trading Ban and Operating as an Unregistered Futures Commission Merchant
CFTC investor alert about binary options trading
Financial services companies established in 2009
Financial services companies of Israel
Financial services companies of Cyprus
Financial derivative trading companies
Online gambling companies of Israel
Defunct companies of Israel
Defunct companies of Cyprus
21st-century scandals
Confidence tricks
Fake news
Finance fraud