About two months after the Nevada District Court issued an order imposing heavy penalties on Malhaz Pinhas Patarkazishvili, also known as Pini Peter, and Spot Option, Ltd in a lawsuit brought by the Securities and Exchange Commission (SEC), the defendants have challenged the ruling.

Recent Court filings, seen by FX News Group, reveal that the defendants appeal to the United States Court of Appeals for the Ninth Circuit from:

• All judgments and orders in this case;
• “Final Judgment as to Malhaz Pinhas Patarkazishvili and Spot Option, Ltd.,” entered on January 6, 2023; and
• All judgments, rulings, and interlocutory orders made appealable by the foregoing.

On January 6, 2023, Judge James C Mahan of the Nevada District Court signed an order granting the SEC’s motion for default judgment against Pini Peter and Spot Option, Ltd., now known as Spot Tech House, Ltd.

Spot Option was found liable for disgorgement of $56,460,888.04, representing net profits gained as a result of its fraudulent conduct, together with prejudgment interest thereon in the amount of $17,885,590.18, and a civil penalty in the amount of $66,298,176 pursuant to Section 20 of the Securities Act [15 U.S.C. §§ 77t(d)(2)(C)] and Section 21 of the Exchange Act [15 U.S.C. §78u(d)(3)(B)(iii)].

Defendant Spot Option had to satisfy this obligation by paying $140,644,654.22 to the Securities and Exchange Commission within 30 days after entry of the Final Judgment.

Pini Peter was found liable to the same extent as Spot Option for disgorgement of $56,460,888.04, representing net profits gained by Spot Option as a result of the conduct alleged in the Complaint, together with prejudgment interest thereon in the amount of $17,885,590.18, and a civil penalty in the amount of $13,254,592 pursuant to Section 20 of the Securities Act [15 U.S.C. §§ 77t(d)(2)(C)] and Section 21 of the Exchange Act [15 U.S.C. §78u(d)(3)(B)(iii)]. Defendant Pini Peter shall satisfy this obligation by paying $87,601,070.22 to the Securities and Exchange Commission within 30 days after entry of this Final Judgment.

The case concerns a multi-million dollar fraudulent scheme involving unregistered offers and sales of security-based “binary options” to retail investors in the United States from at least April 2012 through August 2017. The scheme was overseen by Pini Peter and Ran Amiran through Spot Option.

The SEC’s complaint alleges that Spot Option contracted with third parties, which it referred to as “Partners,” “White Labels,” and “Brands”, to market its binary options. Unbeknownst to investors, Spot Option structured its business model so that its Partners were the counterparty on every trade. Under this structure, Spot Option and its Partners made their money principally from investor losses.

According to the SEC’s complaint, to make the scheme profitable, Spot Option set the payout terms on its options in a way that made it likely that most investors would lose all or a substantial portion of their investment within the first five months of trading. Spot Option trained its Partners, however, to deceptively market the binary options as profitable investments.

Spot Option used additional deceptive and manipulative practices to increase investors’ losses and boost Spot Options’ income stream. These practices included manipulating the trading platform to increase the probability that trading would be unprofitable and offering investors a so-called “bonus” to lock-up investor funds and prevent withdrawals, which, when combined with the payout terms, virtually guaranteed investor losses.

Through these and other deceptive and fraudulent acts, Spot Option sought and reached thousands of investors in the United States, including retirees, who traded through its platform. Many of those investors lost most of their money including, in some cases, hundreds of thousands of dollars meant for retirement. Spot Option and its Partners, on the other hand, raked in millions in profits, the regulator says.

The SEC accused Spot Option of violation of the registration provisions of Section 5(a) and 5(c) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77e(a) and 77e(c)], the antifraud provisions of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], and the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. §§ 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b‒5].

The Complaint said that Defendants Pini Peter and Amiran are liable for violations of Section 5 of the Securities Act because they each played a substantial role in Spot Option’s offers and sales of binary options. Pini Peter and Amiran are also allegedly liable for Spot Option’s violations of the Exchange Act because they are controlling persons of Spot Option as defined by the Exchange Act.

The case in the District Court was closed on January 6, 2023. The defendants have until May 8, 2023 to file their opening brief in the Appeals Court.