Binary Options' Marketers Rule 11 Sanctions and Chutzpah

[Israeli lawyer]

Binary Options' Marketers Rule 11 Sanctions and Chutzpah

By Haggai Carmon
CarmonLaw.com and CombatScam.com​

Chutzpah. This almost translatable Hebrew word has found its way into English. Per Wikipedia, it means “the quality of audacity, for good or for bad.” But really, that is too tame. Chutzpah carries a tinge of the unexpected twist, the outrageously cheeky. Does what Michael Shah and his company, Zilmil, Inc., did here qualify as chutzpah? I’ll report. You decide.

Shah and his Zilmil, Inc., are marketers of binary options. Binary options are all-or-nothing financial options. You either win a fixed monetary amount, or you lose your investment, 100%. The U.S. Commodity Futures Trading Commission (CFTC) has sued Shah and Zilmil, Inc., for grossing more than $18.6 million by fraudulently inducing people to trade binary options online through a raft of binary options websites, for instance, LBinary, Global Trader 365, Vault Options, TraderXP, Trade Rush, Banc de Binary, Citrades, OptionMint, OptionRally, RBOptions, Bloombex Options, Redwood Options, BeeOptions, Amber Options, OptionsXO, and SpotFN, although none of these websites or their operators are, or ever have been, registered to offer binary options contracts to the public.

According to CFTC’s lawsuit, Zilmil and Shah claimed fraudulently, in emails and on websites, that their trading systems will automatically place profitable trades for the user, or provide “signals” with which the user can make profitable trades. Sign up for one of the Zilmil Defendants’ trading systems, and you’d be instructed to deposit money with a binary options website. But customers who did so rarely, if ever, received any of their money back. It typically disappeared, all 100%, into the pockets of the binary options website operators.

Naturally, defendants Shah and Zilmil deny these allegations. But they’ve gone further. One remarkable ploy is to get at the lawyers for the CFTC by filing a “Rule 11 motion” against them. Under Rule 11 of the Federal Rules of Procedure, at least one attorney of record must sign every pleading, written motion, or other document filed in a case, certifying that, to the best of the attorney’s knowledge, it is not being filed for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation. If the court determines that an attorney has violated Rule 11, it may impose an appropriate sanction on that attorney, and on any other attorney responsible for the violation.

When they sued Shah and Zilman the CFTC’s lawyers made this Rule 11 certification, of course. They are the good guys, after all, protecting investors from scammers. So following Shah and Zilmil’s highly unusual Rule 11 motion against the CFTC, the government's lawyers replied that the defendants are desperate and meritless, making a transparent attempt to prolong the proceedings and extract settlement concessions. Defendants' arguments are cut and pasted from earlier briefs, indicating that their Rule 11 motion has no purpose other than harassment. Further, the circumstances of its filing strongly suggest that the defendants “intended to use their meritless Rule 11 motion to extract settlement concessions from the CFTC.” Indeed, counsel for the defendants has contacted counsel for the CFTC to discuss the Rule 11 motion and settlement, trying to pile up pressure on the regulator to accept the defendants’ settlement proposal.

But perhaps what’s most likely to backfire on Shah and Zilman is a sample of Shah’s own marketing messages – not to his potential customers, obviously! – quoted in the CFTC’s opposition, which tout what great scams Shah’s binary options trading systems are. For instance:

“[8/10/2014 7:53:26 PM] MIKE S: Ladies and Gentlmen [sic] and Imran,
****
I want to gratefully ask you for support with my new scam.
2014 Millionaire goes live at exactly 3AM EST Monday morning, as that’s when all the brokers start their scammy days. I have a TEN broker rotation with some backups, so every one of your leads will get the utmost scam….”

Can you believe? So the CFTC has turned the tables, and asked the court to impose sanctions instead on the Zilmil Defendants for their extraordinary misconduct in filing this Rule 11 motion. Only sanctions, the CFTC argues, will deter them from further violating the Federal Rules. Merely denying their motion will send the message that filing frivolous and abusive filings has no downside. But the CFTC should never have had to respond to the Zilmil Defendants’ meritless and duplicative Rule 11 motion. The Court should never have had to read it.

Now the federal court will decide: sanction CFTC’s lawyers, or sanction Shah and Zilman? And you get to decide, as well: Chutzpah?

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