"Uvda," an Israel television investigative documentary program hosted by Ilana Dayan, screened a report last Thursday about the Black Cube company's negative business intelligence operations. The report highlighted an unsuccessful effort to gather harmful business intelligence on Strauss Group Ltd. (TASE:STRS) chairperson and controlling shareholder Ofra Strauss, and also revealed that Hot, Bezeq, and Israel Chemicals had also hired Black Cube, managed by CEO Dan Zorella.
According to Uvda, Black Cube has used the same methods employed by Israel's security services, especially the Mossad, in a series of investigations for companies. Dayan's report opens a Pandora's box of legal, moral and ethical questions about gathering business intelligence on companies and regulators.
Dayan's report did not completely catch Ofra Strauss and other Strauss's executives by surprise. Former Strauss executives and other food industry sources said that business intelligence against the company was used as part of a previous legal and business dispute between Strauss and TPG Capital Fund, a US-based private investment firm.
This dispute, which reached a peak in 2013, concerned their partnership in the Strauss Coffee company formed in 2008, when TPG bought a 25% stake in Strauss Coffee at a company value of NIS 1.16 billion. The partnership was intended to make Strauss Coffee a leading player in the coffee market, and to accelerate its expansion. Relations between Strauss Group and TPG soured shortly afterwards. TPG sought to sell its holding a few years after the partnership was formed, and demanded that Strauss Group either repurchase it or hold a public offering for Strauss Coffee.
Statements submitted by TPG in legal proceedings show that the 2008 agreement with Strauss stated that the parties would act to generate an exit after four years, whether through an overseas IPO for Strauss Coffee or in some other way. TPG alleged at the time that it had tried to gain Strauss Group's cooperation in such a measure, but had been thwarted in this aim by Strauss Group.
TPG attacked Strauss Group in court, stating that Strauss Coffee was not being properly managed. TPG asked the court to appoint an independent director to Strauss Coffee's board of directors, but the court dismissed the request.
A number of events at the time aroused suspicion that illegitimate tactics were being used against Strauss. The legal proceedings revealed a telephone call that took place between a senior executive, who represented TPG on Strauss Coffee's board of directors, and Strauss legal adviser Adv. Michael Avner.
"On May 26, 2013, I sent an e-mail to Avner," the executive wrote at the time. The purpose of the e-mail was to schedule a meeting between Strauss Group and TPG, the shareholders in Strauss Coffee, to which several investment bankers would be invited to express an opinion about a possible offering. When no answer to the e-mail was received after two days, it was alleged, the executive decided to call Avner's mobile number.
He said that he told Avner, "That he was calling." Avner, however, who apparently thought that he was speaking with a different person of the same name, told the TPG executive about all of Strauss Group's measures and plans for thwarting TPG's attempts to lead an IPO for Strauss Coffee.
When Avner later realized that he was talking to the executive from TPG, he terminated the call, but questions about it remain: was it a case of human error, or had it been planned?
In any case, a series of aggressive reports against Strauss, Strauss Coffee executives, and even against McKinsey and Company Israel, which advised Strauss and was managed by Dana Maor, daughter of Galia Maor, a director at Strauss Group at the time, showed that the dispute between the companies was indeed a bitter one. The dispute was significant in monetary terms - Strauss Coffee was Strauss Group's main activity, accounting for 50% of its revenue. Strauss Coffee was a global market leader, including in Brazil, and was one of the world's 10 leading coffee companies in sales, with 14 production sites and 7,500 employees, including 780 in Israel. Strauss Group later acquired TPG's stake in Strauss Coffee, and as far as is known, there is no connection between the companies.
Ofra Strauss: To clarify principles
There is no way of knowing who hired Black Cube in the Strauss case and how extensive its activity was, but the affair nevertheless leaves a bad aftertaste. Ofra Strauss, the target of personal intelligence activity, told "Globes," "Search methods or delving into the personal affairs of businesspeople and company officeholders in order to use the information for sale, extortion, or pressuring those people, thereby gaining an advantage, is illegitimate, and must be condemned. The lines are clear and unmistakable. This behavior should be taken out of the dark corners and exposed to the light of day, because it portrays all of us in an unflattering light.
"At a time when information is so available, the business community and our business leadership are obligated to draw an ethical line making it clear which actions are legitimate in order to achieve objectives and which must not be taken.
"I must say that as someone who has been in the business world for years, this behavior is not typical of the business community in Israel or in the world, as I know it. It is a wakeup call for anyone who regards him or herself as a leader to make clear the principles according to which the company or the country we have chosen to live in acts."
Sources in the economy were asked whether they had employed or been exposed to Black Cube's activity in recent years. They told "Globes" today that among other things, they had agreed to work with the company after it was made clear to them that the company used the services and was backed by legal opinions from leading lawyers in Israel and overseas. "When they bring you an opinion by Adv. David Hodak that everything is legal, you go along with it," a senior executive said in this context.
A query by "Globes" revealed that Black Cube indeed used legal advice from the GKH Gross Kleinhendler Hodak Halevy Greenberg Shenhav & Co. law firm on several occasions over the years. Sources familiar with the company's work told "Globes" that Black Cube knew that it had to have legal opinions available bearing the symbol of a recognized law firm.
GKH's legal services were provided to Black Cube at the latter's request. According to information possessed by "Globes," most of these legal services consisted of writing individual legal opinions about Israel law needed by the company in its activity in Israel. The most recent occasion on which GKH worked for Black Cube was two years ago, when the lawyer providing the services was former State Attorney's Office criminal division director Adv. Ephrat Barzilai.
Bank Hapoalim versus Motti Zisser
Another business entity that hired Black Cube (it is claimed that this was indirect, without a direct contract between them) was Bank Hapoalim (TASE: POLI). The bank used Black Cube's services in its legal battle against late businessperson Motti Zisser.
For many years, the banks had a very positive and sympathetic, almost pampering, relationship with Zisser, as a result of his great development capabilities and personal charm. Late in his life, however, following business failures and the financial troubles of the companies under his control, this changed.
Zisser engaged in total war against Bank Hapoalim, his biggest creditor, which sometimes became personal and vitriolic. The bank spared no means, spending large efforts and resources to collect the former tycoon's debts, which it had never done with any tycoon before Zisser.
In June 2015, Bank Hapoalim petitioned the Tel Aviv District Court to declare Zisser bankrupt, and to appoint Adv. Giora Erdinast as receiver for Zisser's personal assets. The petition was submitted after Zisser's private companies, Europe-Israel and Control Centers, through which Zisser controlled public company Elbit Imaging, entered receivership and liquidation proceedings after failing to repay a debt of over NIS 1 billion to Bank Hapoalim (Zisser used the money to pay for his purchase of shares in Elbit Imaging).
Bank Hapoalim strove to locate Zisser's overseas assets in order to sell them off and collect the proceeds. For this purpose, the bank hired Black Cube, which helped Bank Hapoalim and the Erdinast, Ben Nathan, Toledano & Co. law firm in their legal proceedings against Zisser. Today, the law firm represents Uvda and its employees, against whom Black Cube is threatening to file a slander lawsuit because of the documentary program.
A source involved in the activity of Black Cube said that the company had no connection to either TPG or Ofra Strauss.
Published by Globes, Israel business news - en.globes.co.il - on June 10, 2019
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