I Option Group Company (the “Company”) operated a securities trading online website for the purpose of trading in binary options. The shareholders and managers of the Company and a number of businessmen engaged in contacts for the purpose of making an investment in the Company, and in 2013 two agreements were signed between the Company and the investors, when one of these agreements was referred to as a “Loan Agreement” and the second was referred to as a “Letter of Intent.”

After signing the agreements, the group of investors transferred to the Company an amount of USD 800,000, equal to approximately ILS 2.9 million.

In accordance with the terms set forth in the Loan Agreement, the loan was supposed to be paid approximately one month after it was provided. After the loan payment date was due, the group of investors presented to the Company a demand to return the loan, however the Company answered that the sums were provided to the Company as an investment and not as a loan, and therefore the sums would not be returned to the group of investors.

The group of investors applied to the court, and argued that the negotiations for the purpose of making an investment in the Company did not evolve into a binding contract, and that the amount of ILS 2.9 million was a loan that must be returned to the group of investors.

In addition, the investors argued that their intention to make an investment in the Company was based on representations relating to the position of the Company that were false and misleading: the Company made a misrepresentation to the investors, as if the Company earned $100,000 per month, and that the Company was worth approximately $8,000,000.

De facto, it was found that the Company lost hundreds of thousands of shekels per month, that it was unprofitable, that it owes substantial amounts to its customers, and that de facto it operated as a “pyramid” when the deposits of the customers were used by the Company for the purpose of paying for its expenses and for making withdrawals for previous customers of the Company.

It was further found that the Company was nothing but an empty shell, did not have management or employees, did not generate income, and did not even have bank accounts, in light of the fact that it sold its entire assets to a company by the name of Scorpid that is wholly-owned by one of the shareholders in the Company.

The group of investors further argued that the shareholders and the managers in the Company knew or had to know about the real condition of the Company and despite that made to the investors false representations regarding its condition. If the investors had known the real position of the Company, they would not have lent it any sums or even thought about making an investment in it.

The shareholders and the managers of the Company argued at the same time that the group of investors invested sums in the Company, and that the investment turned out to be unprofitable. Therefore, the investors were trying to make a representation to the court as if the investment in the Company was in fact a loan, in a wrongful attempt to recover the sums that they lost at the time of making the investment in the Company.

After examining the evidence, the court concluded that this was a loan transaction and not an investment transaction, because at the time of signing the agreements between the parties, the entire reviews in connection with the investment were not completed yet, and in light of the fact that the parties knew each other in person, the shareholders and the managers pressured the investors to transfer the sums immediately to the Company.

Despite the fact that the court concluded that this was a loan transaction and not an investment transaction, the court also examined the argument as if the investors received a misrepresentation regarding the position of the Company. The court concluded that the shareholders and the managers indeed made a representation that the Company was profitable, a representation that was completely not true, and therefore this representation is in violation of many laws, inter alia, contract laws, the covenant of good faith, negligence laws and more.

In light of the fact that the Company collapsed, and it will not be able to return the loan, the investors requested from the court to order the shareholders and the managers in person to return the debt owed by the Company, i.e., that the shareholders and the managers will return in person to the investors the loan amount of approximately ILS 2.9 million.

The court concluded that the four shareholders and officers in the Company against whom the lawsuit was filed knew about the real condition of the Company and received regular reports about its condition. Despite that, they made the misrepresentations in their meetings with the investors.

The officers and the shareholders in the Company knew about the bad condition of the Company however despite that made to the investors misrepresentations as if the Company was a profitable company. Therefore, the court ordered the 4 officers and shareholders in the Company, in person, to return to the group of investors the amount of ILS 2,963,752.

In addition, the court ordered the officers and the shareholders to pay to the investors their attorney fees in the amount of ILS 200,000.

• Case 15794-12-13 YASSUR PRO LTD et. al. v. iOption Group Ltd. et. al., given in the District Court of Tel Aviv on May 28, 2019.

• An appeal was filed in the Supreme Court however was dismissed with the approval of the parties.