Binary options have been prohibited in almost all jurisdictions since 2018. The legal review of the illegal and fraudulent binary options is in many aspects reminiscent of the Black Friday campaign for online gambling in 2011, and it takes years to review the cases. Isai Scheinberg, the legendary founder of PokerStars and the main defendant in the Black Friday affair did not appear in court until February 21, 2020. A good opportunity for a brief comparative analysis between illegal binary options & gambling business and the legal responsibility of facilitating payment processors.
Black Friday for Online Poker
On a Friday in April 2011, the US attorney Preet Bharara unsealed indictments against the operators of PokerStars, Full Tilt Poker, Cereus, and others in the action known as Black Friday (see Wikipedia) for the online gambling industry. The charge read on illegal Gambling, money laundry, and bank fraud. Several payment processors were also indicted and convicted. Prison sentences and millions in fines were imposed. The Unlawful Internet Gambling Enforcement Act passed by the US Congress in 2006 had made online gambling and thus also online poker illegal. The situation was similar with binary options, where 99% of the providers acted illegally and fraudulently.
Payment Processors pleaded guilty
In the Black Friday case United States v. Scheinberg, No. 1:10-cr-00336 (2011), the prosecutors were seeking jail sentences for the 11 criminal defendants including poker site founders and executives, four payment processors, and the Vice-chairman of SunFirst bank that allegedly was involved in the processing of payments of illegal online poker sites. Read the US DOJ press release here.
One of the payment processors, the US citizen Ira Rubin was sentenced to three years in prison and ordered to forfeit $5 million (Source: Bloomberg). All other payment processors also pleaded guilty and entered into respective plea agreements with the US prosecutors.
PokerStars legend Isai Scheinberg finally surrenders
On February 21, 2020, the legendary founder of PokerStars, Isai Scheinberg, 73, appeared before a New York court. Voluntarily, or well, almost voluntarily. In 2019, Scheinberg used to be in Switzerland and the US authorities triggered extradition proceedings. In the end, Isai Scheinberg turned himself in voluntarily and appeared in court. Scheinberg surrendered his passports, posted a $1 million bond, and was released with orders to remain in the New York area. He was the last of the 11 original defendants to face his charges in the US. Apparently there will be a plea agreement with the US prosecution.
The remarkable thing about the Black Friday action is that the US prosecutors, as well as later the courts, have acknowledged the legal and criminal responsibility of the involved payment processors. As a matter of fact, the indicted payment processors were punished even worse than the operators of illegal online gambling sites.
As alleged in the Indictment, to accomplish their fraud, the Poker Companies worked with an array of highly compensated “payment processors” – including defendants RYAN LANG, IRA RUBIN, BRADLEY FRANZEN, and CHAD ELIE – who obtained accounts at U. S. banks for the Poker Companies. The payment processors lied to banks about the nature of the financial transactions they were processing, and covered up those lies, by, among other things, creating phony corporations and websites to disguise payments to the Poker Companies. For example, a PokerStars document from May 2009 acknowledged that they received money from U.S. gamblers through company names that “strongly imply the transaction has nothing to do with PokerStars,” and that PokerStars used whatever company names “the processor can get approved by the bank.
US Black Friday indictment ( United States v. Scheinberg, No. 1:10-cr-00336 (2011) )
Lessons to learn for Binary Options
The binary options were illegal in most cases (jurisdictions) and mostly also fraudulent scams. Many financial market regulators have warned against binary options in general and certain (licensed and unlicensed) providers. Many vendors have been labeled as a scam by the regulators. Nevertheless, payment processors have facilitators these broker scams with their services. For this, they must be held accountable in the very best interest of the aggrieved retail investors. This means criminal penalties and restitution payments.
Lesson: no online fraud without facilitating payment processors!
