A federal trial begins this week for an Israeli woman charged in the US with directing a scheme to defraud tens of thousands of investors across the globe out of tens of millions of dollars.
Jury selection for Lee Elbaz's trial was scheduled to start Tuesday in Maryland. She is one of 15 defendants charged in the case and the first to be tried. Five of them have pleaded guilty and agreed to cooperate with prosecutors.
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Elbaz, 37, was CEO of an Israel-based company called Yukom Communications. She is accused of engaging in a scheme to dupe investors through the sale and marketing of financial instruments known as "binary options."
She was indicted in March 2018 on three counts of wire fraud and one count of conspiracy to commit wire fraud. She was arrested in 2017 after traveling to New York.
A separate indictment against nine other defendants says the scheme cost investors more than $145 million worldwide.
Yukom Communications employees allegedly pretended to be from other countries, lied about their professional qualifications and adopted "stage names," authorities have said. They falsely guaranteed returns of up to 40%. And they didn't tell investors that the company handling their "binary options" only made money if its customers lost money, according to the FBI.
Federal prosecutors in Maryland have filed related charges against three other women who worked for Yukom. Shira Uzan and Liora Welles were charged in 2018 with conspiracy to commit wire fraud. The same charge was filed in November against another defendant, Lissa Mel.
Welles and Uzan, both of whom worked under Elbaz as sales representatives, pleaded guilty to the conspiracy charges during separate hearings. Welles and Uzan acknowledged that they were "directly responsible" for approximately $2.4 million and $1.8 million in investor losses, respectively, according to court filings.
The binary options market largely operates outside the US through unregulated websites. Its victims span the globe. In court papers, prosecutors said the payout on a binary option is usually linked to "whether the price of a particular asset such as a stock or a commodity would rise above or fall below a specified amount."
"Investors are effectively predicting whether its price will be above or below a certain amount at a certain time of the day, and when this option 'expires,' the option holder receives either a pre-determined amount of cash or nothing," they wrote.
In 2011, the FBI's Internet Crime Complaint Center received only four complaints from victims of binary options fraud, reporting losses of just over $20,000. In 2016, however, the center received hundreds of these complaints with millions of dollars in reported losses.
"This has been a worldwide problem," Justice Department prosecutor Ankush Khardori said during a September 2017 detention hearing for Elbaz, according to a transcript.
Defense attorney Jonathan Lopez, who represented Elbaz at that hearing, said his client worked for a legitimate business.
"They do a lot of things in this [FBI] complaint to make it [seem] like this is some Nigerian boiler room or some sort of lottery scam. That is none of these things," he said.
Elbaz and other co-workers made commissions based on the amounts of clients' deposits, not their profits, prosecutors say. Her indictment cites a September 2015 email from one employee to co-workers about a sales "marathon," a competition to obtain deposits from investors.
