Nearly four months after binary options fraudster Lee Elbaz, the former CEO of Israel-based Yukom Communications, challenged the 264-month prison sentence and the $28 million restitution order issued as to her by the Maryland District Court, the Department of Justice (DOJ) has responded to her arguments.
The FX News Group team has obtained the Brief filed by the DOJ with the Fourth Circuit U.S. Court of Appeals on April 9, 2021. In this document, the DOJ stands by the heavy prison sentence for Elbaz and by the amount of restitution that she has to pay in this case.
Following a jury trial in the United States District Court for the District of Maryland, Elbaz was convicted of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349; and three counts of substantive wire fraud, in violation of 18 U.S.C. § 1343. The district court sentenced Elbaz to 264 months in prison. Later, the Court determined the amount of restitution at $28 million, although the actual amount of losses was much bigger – these losses totalled approximately $106 million.
Lee Elbaz and her confederates orchestrated a multimillion-dollar fraud scheme that targeted financially unsophisticated victims. The victims lost all or nearly all of their investments. At the center of this case were purported investments in “binary options.”
Elbaz and her co-conspirators facilitated this scheme through several companies that purportedly offered opportunities to invest in binary options. One such company was Yukom, based in Caesarea, Israel, and where Elbaz began working in May 2014. Over time, Elbaz ascended to become the CEO at Yukom.
She also had close ties to a company called Numaris, based in Tel Aviv, that similarly solicited clients to invest in binary options. Yukom and Numaris employees held themselves out to clients and potential clients as “brand managers” on behalf of two binary-option brands: Big Option and Binary Book. Finally, Elbaz communicated regularly with, and occasionally sent employees to, another company, Linkopia, based in Mauritius.
The scheme began with Linkopia employees communicating with potential clients. When a member of the public from anywhere in the world responded to an online advertisement or a telephonic solicitation, “conversion” agents at Linkopia tried to persuade that person to become a client. A successful “conversion” meant that the person had agreed to invest at least $250 in binary options. At that point, responsibility for the client transferred from Linkopia to “retention” agents based in Israel at either Yukom or Numaris.
Retention agents shared certain similarities. They had no relevant experience in financial markets or investment strategies yet represented otherwise to clients. For example, Shira Uzan obtained a degree in gerontology and held jobs at a cellphone provider, a daycare center, and an airline company before Elbaz hired her to work at Yukom. But she told one client that she was a “senior broker and qualified market analyst with 15 years of experience.”
Upon starting at Yukom, in fact, new employees received a “kit” that included a new (fake) name and associated email address. Yukom employee Hadas Ben Haim went by the name Jessica Giovani, for instance.
In addition to lying about their experience and background, retention agents lied about the nature of investing in binary options. Elbaz hired, trained, and oversaw the retention agents who made these misrepresentations. She was “highly involved” in training retention agents, the DOJ explains.
She was physically present in the office – which resembled a party type atmosphere where agents were incentivizing the client to deposit and to increase urgency so they deposit quicker. Elbaz directed Uzan to lie that Uzan made a commission only on “winning trades.”
During one training, Elbaz compared the job as a retention agent to a casino manager: the goal was to get clients “addicted.” She trained employees on how to lie to clients, including instructing agents to exaggerate or lie about returns on investment. She urged retention agents to follow a script misrepresenting the agents’ background and experience. She was, in short, in full control of what was going on at Yukom, the DOJ notes.
Elbaz also directed retention agents to prevent client withdrawals. Because retention agents were paid on net deposits— deposits minus withdrawals—a retention agent’s failure to stop a client withdrawal reduced the agent’s salary.
Victims who sent money to Yukom included victims from the United States. Aquil Bryant, who had no prior experience investing in financial markets, invested in binary options based on financial advice from “Jessica Giovani,” who told Bryant that he was “getting amazing results.” Bryant ultimately invested more than $30,000; he lost it all.
As the scheme unraveled, Elbaz and others recognized and sought to guard against potential criminal exposure. In the spring of 2016, Elbaz and Yukom’s owner, Yossi Herzog, directed Yukom employees to sign a code of ethics; when Herzog made an accompanying speech about “doing things ethically.”
Reports surfaced in the Israeli press in August 2016 about malfeasance in the binary-options industry; the next month, Elbaz sent a text message to a friend stating that what Elbaz did was not legal in the United States. In September 2017, Elbaz and Yossi Herzog discussed potential legal liability associated with traveling to United States. Noting that she was flying to New York fora week, Elbaz asked Herzog, “Is there anything I should be afraid of?” Elbaz was arrested in New York a few days later.
In the brief filed on April 9, 2021, the DOJ opposes Elbaz’s attempt to avoid responsibility by challenging the extraterritorial application of the criminal statute over her activities in Israel.
The DOJ argues that this case involves a permissible domestic application of the wire fraud statute. As every court of appeals to have considered the issue has held, Section 1343 focuses on prohibiting wire transmissions that execute a fraud scheme. The indictment alleged that Elbaz caused such transmissions (i.e., emails and phone calls) to be sent to and received by Maryland residents to accomplish her binary-options fraud scheme.
According to the DOJ, the district court at sentencing properly considered losses suffered by victims residing outside the United States stemming from Elbaz’s domestic wire fraud offense. The presumption against extraterritoriality does not apply to the advisory Sentencing Guidelines, and 18 U.S.C. § 3661 provides for “no limitation” on the conduct a sentencing court may consider.
Losses suffered by foreign victims, moreover, reflect conduct relevant not for its own sake, but because it sheds light on the gravity of Elbaz’s domestic wire fraud offense. As such, the district court was not required to confront any difficulties posed by assessing foreign law. And any error would be harmless because losses suffered by United States victims exceeded the total loss attributed to Elbaz, and because the district court would have imposed the same sentence—which was a 60-month downward variance from the advisory Guidelines range—even if it had miscalculated that range.
Finally, the DOJ stresses that the order for $28 million in restitution was correct. Section 3663A(a)(1) requires restitution for any victims harmed as a result of Elbaz’s fraud scheme without regard to where those victims are located. Her challenge that the restitution was improper because it encompassed foreign victims, raised for the first time in this Court, fails, the DOJ concludes.