Tefek (Tel Aviv) 31664-11-22 State of Israel v. Gol Shorosh

Attendees:                                                                  

Counsel for the accuser – Adv. Yossi Zadok

Counsel for Defendant 1 – Adv. Ronen Menashe and Adv. Kobi Ron

Counsel for Defendant 2 – Adv. Adi Barkai

Counsel for Defendant 3 – Adv. Iris Shmueli

The defendants appeared

Background and facts of the indictment

1. The defendants admitted the facts of the amended indictment (hereinafter: the indictment) as part of procedural plea bargains that were formulated after a mediation proceeding. Subsequently, they were convicted of the following offenses:

Defendant 1, as part of the three charges, of the offense of managing a trading arena without a license, under Section 53(b)(6A1) together with Section 44C(a) of the Securities Law, 5728-1968 (hereinafter: the Securities Law) and together with Section 29(b) of the Penal Law, 5737-1977 (hereinafter: the Penal Law); of multiple offenses of offering to trade in a non-heritage trading arena under Section 53(b)(6B) together with Section 44To(a) of the Securities Law and together with Section 29(b) of the Penal Law; in multiple offenses of fraudulent receipt under section 415 together with section 29(b) of the Penal Law; in the offense of theft by hand committed by an authorized person, under section 393(2) together with section 383(a)(2) and together with section 29(b) of the Penal Law.

Defendant 2, as part of the three charges, for the offense of managing a trading arena without a license, under section 53(b)(6a1) together with section 44C(a) of the Securities Law and together with section 29(b) of the Penal Law; multiple offenses of offering to trade in a non-heritage trading arena under section 53(b)(6b) together with section 44T(a) of the Securities Law together with section 29(b) of the Penal Law; multiple offenses of fraudulent receipt under section 415 together with section 29(b) of the Penal Law; Multiple offenses of theft by hand committed by an authorized person, under section 393(2) together with section 383(a)(2) together with section 29(b) to the Penal Law.

Defendant 3, on the first and second charges only, of multiple offenses of offering to trade in a non-heritage trading arena under section 53(b)(6b) together with section 44To(a) of the Securities Law together with section 29(b) of the Penal Law; of multiple offenses of fraudulent receipt, under section 415 together with section 29(b) of the Penal Law; in the offense of theft by hand committed by an authorized person, According to section 393(2) together with section 383(a)(2) together with section 29(b) of the Penal Law.

2. In the plea bargains, it was agreed that in addition to amending the original indictment, the accuser would limit her punitive petition in the case of Defendant 1 to 24 months in prison; in the case of Defendant 2 to 21 months in prison; and in the case of Defendant 3 to 18 months in prison, and counsel for the defendants would be able to argue any punitive position. Each of defendants 1 and 2 even deposited ILS 13,400 in favor of compensation.  After arguing for the sentence, the accuser announced that no compensation was required in this case, and her request is that the sums deposited be taken into account when determining the fine.
3. According to the general part of the indictment, the trading platform TradePro Capitals (hereinafter: TradePro) was established in 2018 and offered its clients the opportunity to trade CFDs through the Meta Trader 4 trading system, even though it did not hold a license to manage a trading platform as required by the Securities Law. A trading platform is a computerized trading platform that allows investors to trade derivatives financial instruments against it.  Trading is carried out vis-à-vis the arena itself and is therefore sometimes characterized by a conflict of interest between it and the client.  When a client loses as a result of a transaction in a financial instrument, the Arena earns the full loss, and when the client makes a profit, the Arena is obligated to pay him the full profit.
4. It has been explained that the HepReshim contract is a leveraged financial instrument whose value is derived from the price of the underlying asset, as this price is determined by the trading arena itself. This is a contract in which the seller undertakes to pay the buyer the difference between the current value of the underlying asset on the day of the transaction, and its value at the time of the execution of the contract.  In a CFD, the client gains or loses according to the "direction" of the transaction he has chosen, and the direction of movement of the underlying asset.  When the customer estimates that the value of the underlying asset will increase, they are expected to purchase the contract.  When he assesses that his value has decreased, he is expected to make a sale.  When the client's loss in all the trades he has opened reaches a certain percentage of the total funds in his account, the Arena will proactively close his trades, and he will be delisted from trading.

The significance of the leverage built into the CFD is that the client is not required to deposit the full face value of the trades he opens, but only a relative percentage of their value as collateral.  Leverage in CFDs involves a lot of risk, because the higher it is, the smaller fluctuations in the price of the underlying asset against the direction of the client's position, are sufficient for the arena to close his trades and he will lose the full amount of his investment.

5. According to the general part, Defendant 1 established and managed TradePro, and entered into the Arena system the details of the customers recruited by Defendants 2 and 3. In addition, he referred clients to the Australian trading exchanges IC Markets and Pepperstone (hereinafter: IC Markets and Pepperstone), which are not supervised in Israel, and received commissions.  Defendant 2 was a partner in the establishment, management and operation of TradePro with Defendant 1, recruited clients, and was entitled in return to a commission, as well as a commission for recruiting customers by Defendant 3.  At the time of Tradepro's activity, defendant 2 worked for Real Forex, and as a result, he could not contact his clients directly in order to persuade them to transfer their activity to Tradepro.  Therefore, Defendants 1 and 2 instructed Defendant 3 to contact the customers of the arena in which Defendant 2 worked and to persuade them to invest in TradePro.  In addition, Defendant 2, together with Defendant 1, referred customers to the Australian arenas Acy Markets and Pepperstone, and together they shared the fees for referring the customers.  Defendant 3 joined Defendants 1 - 2 to market TradePro and recruit customers, and received a percentage of the investment of the clients he recruited.
6. According to the first indictment, in May 2015, Amendment No. 42 5770-2010 to the Securities Law (hereinafter: Amendment 42 to the Securities Law) came into effect, which was intended to regulate the supervision of trading platforms, according to which, in order to operate them, an arena license from the Israel Securities Authority was required. Notwithstanding the aforesaid, in 2018 defendant 1 established TradePro without a license.  TradePro operated from March to October 2018 and offered its clients the option to trade CFDs.  By virtue of being a trading arena, TradePro was the counterparty to all transactions, and the customers' losses are the profits of the arena.  Clients were given the option to invest funds in credit and cash, even thoughTradePro hadits own bank account.  The defendants advertised the scene through a website, sending text messages to potential customers, and entering into a contract with some of the customers.  During its operation, more than 20 clients invested in Tradepro.
7. Defendant 1 was involved in the management of the arena and operations, opening accounts for customers and depositing the funds. Defendants 2 and 3 were engaged in marketing the arena, recruiting customers and collecting money from customers.  In addition, each of the defendants was responsible for the relationship with the clients he recruited.  As stated, defendant 2 worked for Real Forex and since he could not contact his clients directly, defendants 1 and 2 asked defendant 3 to try to recruit these clients, and he was responsible for the relationship with them.  Defendant 2 himself recruited about 10 clients to the arena who invested their money in it.  Defendant 3 marketed the arena from the end of April 2018 to the end of August 2018 in accordance with an agreement with Defendant 1, and received a commission for customers he recruited from Defendants 1 and 2.
8. The indictment specifies that defendants 1-3 approached thousands of potential investors with a text message offer, through an engagement dated May 2, 2018, with Mobi-Me Systems in a tax appeal, which provided TradePro with text messaging services and a landing page (hereinafter: Mobi-Me). On seven occasions, between May 3, 2018 and July 10, 2018, the defendants sent messages advertising TradePro to at least 2,965 different destinations.  Most of the messages were accompanied by a link to the landing page of the TradePro website.  The engagement and conversation with Mobi-Me was carried out by Defendant 3, and the contract was signed by Defendant 1.  Defendant 3 provided Mobi-Me with the mailing list and drafted the content of the text message to be sent to customers together with Defendant 2.  The defendants intended to continue offering in this way to other customers, and they did not succeed in doing so only because Mobi-Me refused to do so.  The defendants also advertised TradePro on the Internet, as well as via email, and in direct contact with customers.  Out of the funds received from the clients, defendant 3 sometimes received about 22.5% of the amount of the clients' deposit that he raised, and this only after the client lost his money.  The rest of the money was divided into equal parts by defendants 1 and 2.  Defendant 2 transferred his commissions to defendant 3 in cash.
9. In doing so, defendants 1 - 2 managed a trading arena as defined under section 44b of the Securities Law, without a license, and defendants 1 - 3 referred customers to a trading arena that is not supervised in Israel.
10. According to the second indictment, between March and October 2018, defendants 1-3 approached potential investors in order to invest in TradePro, and contracted with about 20 customers who invested in the arena in the sum of approximately ILS 300,000, while presenting false representations and concealing information regarding many essential aspects of its activity. Defendant 2 recruited clients who invested approximately ILS 150,000 in the scene.  Defendant 3 contacted eight clients, six of whom contacted the scene, and invested a total of approximately ILS 150,000 in it.  In order to receive the funds from the clients, the defendants all made false and misleading representations, on the basis of which the clients entrusted the investment funds to them, as detailed below:

• Legal activity - Defendants 1-2 presented to customers that TradePro operates under regulation in Israel or abroad, even though they knew that it was not licensed. Among other things, Tradepro's website showed thatit has a license and is subject to regulation in a number of places around the world, including London, Dubai, Hong Kong, Australia and Russia.  In addition, it was stated that TradePro is under regulatory supervision by the Mauritian government.  In practice, TradePro did not have a license to operate as a trading platform, it was not under regulatory supervision and was not even registered as a company in Israel.  Defendant 3 initially believed that it was supervised by the British Supervisory Authority, but after he realized that it was not supervised at all, he continued to inform the clients he recruited that it was subject to Israeli regulation.
• Experience and expertise of the company - In the representations on the Tradepro website and in the representations made to the clients, defendants 1-3 presented that Tradepro has a solid financial background and operational expertise, and that the arena has been active for more than 6 years, and has over 150 customers. This was despite the fact that it had been active for only a few months, and the number of its customers was less than 30.  It was also presented to clients that TradePro had offices, when in practice it had neither offices nor a bank account.
• Trading Conditions and Bonuses - Defendants 1-2 presented clients with a representation that TradePro is not the counterparty to the transaction and, therefore, does not profit from the clients' losses or profits. In practice, by virtue of being a trading arena, it was the opposite party to the transaction and earned the lost customers' money.
• The involvement of the defendants and their remuneration - the defendants concealed the fact that defendant 1 is the owner of the arena, and the involvement of defendant 2 in its management. Defendants 1-2 also concealed from the clients the fact that defendants 2-3 are entitled to commissions for recruiting clients, and that this remuneration is received only if the investment funds were lost, thus concealing the inherent conflict of interest in their activity in recruiting clients to the arena.

11. All of the defendants even interfered in the trading of some of the clients in order to make them lose their investment by taking direct actions in the trading - closing profitable trades, and changing the parameters of the trading account, such as leverage, in order to reduce the profit that can be generated for the client. In doing so, they caused the investment money of those customers to be lost in activity in the arena, in a way that created a profit for the arena and for the defendants.  In addition, defendants 1 and 2 used some of the investors' funds for private purposes.
12. In doing so, the defendants fraudulently received customer money in the sum of approximately ILS 300,000 and their assumption that the arena was operating properly and supervised and invested all of the clients' money in accordance with the representations presented to them. Of this sum, defendants 2 and 3 raised a sum of approximately ILS 150,000 each.  In addition, the defendants intervened with the customers' money, with defendant 2 involved with defendant 1 in accessing the customers' money in the amount of approximately ILS 20,000, and defendant 3 was involved with defendant 1 in misappropriating the customers' money in the amount of approximately ILS 20,000.
13. According to the third indictment, Icy Markets and Preston are Australian trading platforms that are supervised by the Australian Securities Authority but do not have a trading platform license, and therefore are not supervised by the Israeli Securities Authority. Amendment 42 to the Securities Law prohibits making an offer to trade on a trading platform that is not supervised in Israel.  Notwithstanding the aforesaid, defendants 1 and 2 jointly marketed the arenas Acy Markets and Feareston to Israeli customers when they knew that they had no Israeli regulation.  Only defendant 1 was registered as a marketer in these arenas, but he worked hand in hand with defendant 2 and they shared equal parts of the commissions that were received.
14. Thus, between 2017 and 2020, defendants 1 and 2 referred about 16 customers to Icy Markets, presenting it as a reliable contradictory arena with excellent trading conditions. For this activity, Defendant 1 received commissions in the amount of approximately $36,225 between January 2018 and April 2020.  In addition, from the end of 2018 to the beginning of 2020, Defendants 1 and 2 referred approximately 16 clients to Pepperstone together with Pinchas Leib Cohen, whom Defendant 2 knew from his work at Real Forex and who knew him and Defendant 1 (hereinafter: Pinchas).  Pinchas himself was referred by defendants 1-2 to trade in Acy Markets and Pepperstone, and later referred customers together with defendants 1-2 to Pepperstone, in exchange for a commission.  Together, the three convincing customers to invest in the arena by marketing it as an arena with excellent trading conditions.  Between November 2018 and December 2020, Defendant 1 received commissions in the amount of approximately $32,355 from Pepperstone.  As stated, defendant 1 shared the commissions he received with defendant 2 and transferred a small sum to Pinchas as well.  In doing so, the defendants referred 1-2 customers to unsupervised trading arenas in Israel.

Summary of Probation Service Reports

15. Defendant 1's report dated October 13, 2024, detailed his life circumstances and characteristics, and that he was 46 years old, married and the father of two minors, and according to him, was "involved and involved in raising his children." According to him, he worked as a senator for about 15 years, but following his conviction in another case (which, according to the report, was discovered following the seizure of his computer in the investigation in our case) (hereinafter: the previous case) he was forced to resign from his job, work as a warehouse worker in a supermarket and begin an insolvency proceeding.

According to Defendant 1, the background to the commission of the offenses was financial difficulties and an attempt to obtain a significant economic profit.  According to him, for this reason, he participated in a foreign currency investment course, and began to invest independently in a regulated and supervised platform.  At the same time, he began to research the subject of the merchant arenas and consulted with various experts in the field.  He also said that defendant 2, who worked as a sales manager in the arena where he made his investments, offered to refer a number of customers to him who would invest through him in exchange for a commission.  Defendant 1 identified the profit potential and hired an expert located outside the arena, without regulation, and used it for the purpose of committing the offenses.  Although he understood that his conduct was illegal and risky, he found it difficult at the time to examine the problematic nature of his actions and the damage to investors, and he was focused on satisfying his needs while hiding his conduct from his spouse and family.