Legal Updates

Operating an unlicensed trading platform while not disclosing this to investors is a criminal offence

June 5, 2025
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People operated a computerized trading platform that enabled investors to trade with it in a contract for differences - a financial instrument which value derives from the price of the underlying asset, as determined by the trading platform itself. The lack of license for the trading platform was not disclosed to the investors, and they were also presented with false representations that the platform did not profit from their losses and that it had a solid economic background and operational expertise, while it was a new platform.

The Court held that the platform operated illegally and that the actions of its operators amounted to fraud. Israeli law requires obtaining a license in order to operate a trading platform. The importance of regulation stems from the fact that trading is carried out with the arena itself and is therefore sometimes characterized by a conflict of interest between it and the client because when a client loses as a result of a transaction in a financial instrument, the platform gains the full loss, and when the client gains, the platform is obliged to pay him the full profit. Here, the trade is in the form of 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 upon realization of the contract. In a contract of differences, the client gains or loses depending on the direction of the transaction he chose. Therefore, when the platform operators took advantage of the knowledge gaps with the clients and hid the fact that the underlying asset was determined by them, that they profited from the losses of the clients and that they lack a license, they obtained money from the investors by fraud and therefore found criminally liable and sentence to prison.

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