Israel Securities Authority chairman Moshe Tery yesterday summoned United Mizrahi Bank (TASE:MZRH) CEO Eliezer (Eli) Yones and chief legal adviser and legal risks manager Dr. Shimon Weiss for a warning talk. Tery told them that the Security Authority was deeply concerned by the bank’s actions in marketing a structured deposit linked to the share of Teva Pharmaceutical Industries Ltd. (Nasdaq:TEVA; TASE:TEVA). The Securities Authority believes that the bank violated the Regulation of Investment Advice and Investment Portfolio Management Law (1995).
Mizrahi Bank was surprised by the Security Authority’s summons and investigation into the matter.
Tery told Yones that the marketing of structured deposits was legal, but aggressive marketing like that carried out by Mizrahi Bank was problematic. Tery warned that if any additional irregularities were discovered, they would be dealt with the full severity of the law.
In July 2005, amendment 8 to the Regulation of Investment Advice Law was passed. The amendment stipulates that only licensed advisors can provide advice about structured deposits. The maximum punishment for violating this article is two years imprisonment and a fine of NIS 300,000.
The Security Authority believes that Mizrahi Bank aggressively marketed structured deposits by means of personal letters and telephone calls from call centers to holders of deposits and savings plans at Mizrahi Bank and Bank Tefahot. The Security Authority believes that this advice included an aggressive recommendation to buy the product.
The Security Authority is very disturbed that Mizrahi Bank carried allegedly illegal acts only four months after the amendment to the law came into effect, “even before the ink was dry.”
The Security Authority intends to require Mizrahi Bank to examine its actions concerning the structured deposit linked to Teva’s share. The Security Authority will audit the bank in a few days to examine its activities.
In November 2003, Tery gave a similar warning to Bank Leumi (TASE:LUMI) CEO Galia Maor and chairman Eitan Raff about the marketing of mutual funds by Psagot Ofek Investment House. When Bank Leumi carried out another aggressive marketing campaign, a criminal investigation was opened against the bank’s investment advisors and senior executives.
Mizrahi Bank said in response, “The inquiry at the bank at the request of the Securities Authority found that the bank acted legally, and that sales of structured deposits linked to Teva’s share was carried out by licensed advisors, as required by law.”
Published by Globes [online], Israel business news - www.globes.co.il - on November 22, 2005