Who will pay? Binary options marketers clash with Court-appointed Receiver over admin expenses

As the so-called “Millionaire Money Machine” case proceeds at the Florida Middle District Court, disagreements have emerged over who will have to cover the administrative expenses and costs for the general receivership.

The past couple of weeks have seen the Court receive a number of motions related to these expenses, with the defendants arguing against the payment scheme proposed by Court-appointed Receiver Kenneth Dante Murena.

Let’s recall that Mr Murena has been named Permanent Receiver in the enforcement action, which targets Jason B. Scharf, doing business as Citrades.com and AutoTradingBinary.com, his companies CIT Investments LLC, a Nevada limited liability corporation; Brevspand EOOD, a Bulgarian business entity; CIT Investments Ltd., a Marshall Islands business entity; CIT Investments Ltd., an Anguillan business entity; and A & J Media Partners, Inc., a California corporation. The case also names their affiliate marketers Zilmil and Zimil’s owner Michael Shah among the defendants.

Mr Murena had proposed that the bigger part of the expenses should be covered by Zilmil than by Citrades. This, he explains, reflects the fact that the Zilmil defendants held at least 104 known bank accounts containing more than $8 million at the time they were frozen, whereas the Citrades defendants held only 14 known bank accounts containing less than $500 and one attorney trust account containing approximately $98,000 at the time they were frozen.

Moreover, based on the nature of defendants’ respective businesses and the number of and accessibility to the third parties through which those businesses were operated, the Receiver has faced more challenges and obstacles in identifying and confirming the customers and operations of the Zilmil defendants than in identifying and confirming the customers and operations of the Citrades defendants.

According to the CFTC allegations, from June 2013 through the present the Citrades Defendants operated a massive scam in which they fraudulently solicited customers to enter into illegal, off-exchange investments in binary options. The firms received at least $16 million in customer funds.

The Court has found that there is good cause to believe that during the same time period, the Zilmil Defendants acted as third-party ‘affiliate marketers’ who drove internet traffic to the Citrades Defendants by fraudulently soliciting customers to sign up for or purchase binary options autotrading systems. They instructed the customers to send money to the Citrades Defendants and made gross revenues of more than $4 million from sales of its autotrading systems and another $500,000 in commissions from the Citrades Defendants.

Zilmil objects to the CFTC allegations and disagrees that it has to pay 97% of the expenses, as suggested by the Receiver. The firm asks for an equal apportionment of the expenses payment among the defendants instead.

The case is captioned Commodity Futures Trading Commission v. Scharf et al (3:17-cv-00774).