The Tel Aviv District Court Judge Amiram Benyamini today approved a class-action lawsuit against Africa-Israel Investments Ltd. (TASE:AFIL), controlled by chairman Lev Leviev, over the company's 2009 debt settlement. The lawsuit was filed by Benjamin Asulin, who lost claims he sold Africa-Israel Series 9 bonds at loss, after the debt settlement, when it became clear that the company would not redeem them. He claims to have lost NIS 52,599.
The class-action suit was approved on behalf of all Africa-Israel Series 9 bondholders who held bonds from the issue date on June 1, 2009, through August 28, 2009, and who sold the bonds between August 30, when the company's published the financial report which indicated the bad shape that it was in, and October 29, 2009, when trading in the bonds was stopped as part of the debt settlement.
Asulin manages a private investment portfolio worth NIS 2.5 million. Africa-Israel's Series 9 bond was only issued to institutions in 2005 and matured was due to mature on November 10, 2009. On May 7, 2009, the institutions decided to list the bond for trading on the Tel Aviv Stock Exchange (TASE).
According to the court minutes, Asulin says, "This was basically a conspiracy by the company and the investment institutions, because of the company's financial condition, and was intended to enable the institutions to sell the bonds they held to the public."
Africa-Israel says that the bonds were listed for trading because it wanted to make a bond buy-back. However, according to the court minutes, "The company never made the bond buy-back, citing the company's financial shape. The claimant views the announcement of the company's intention to buy back the bonds as a false presentation on its part, and that the contention that the company did not disclose to investors that the listing of the bonds for trading was actually at the request of the investment institutions."
On May 31, 2009, Africa-Israel published its financial report for the first quarter, in which it stated. "The company has sufficient financial sources to meet its commitments in the foreseeable future", and that it posted a quarterly net profit of NIS 1 billion.
According to the court minutes, Asulin bought the bonds solely on the strength of a "Globes" article from the same day, which quoted then Africa-Israel CEO Izzy Cohen as saying, "The profit is a demonstration of Africa-Israel's strength… The valuations reflect the current situation, and are expected to continue rising with the opening of commercial centers… Africa-Israel has a policy of meeting its commitments, and I see no problem at this time in meeting the commitments."
Subsequently, however, Africa-Israel suffered heavy losses, and its auditor attached a going concern warning to the company's financial report for the second quarter of 2009. The company then announced that it would seek a debt settlement. The price of the Series 9 bond fell almost 50% in the week following the publication of the financials. Asulin, who bought bonds for NIS 422,000, sold them for NIS 366,000. He alleges that the company concealed information from the public before the publication of the financials about its ability to meet its commitments, resulting in buyers of the Series 9 bond losing money on the investment. He says that the company should have shared the warning signs known to its executives with the public.
Judge Benyamini set a prehearing on the case for May 22. The respondents will file a statement of defense within 45 days, and the statement of response will be filed within 30 days afterwards. Africa-Israel will also pay Asulin NIS 70,000 in court costs.
Published by Globes [online], Israel business news - www.globes-online.com - on February 13, 2013
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