The story behind Magic Software's profit warning already looked pretty bad on Monday. The fact that the company did not meet the analysts' forecasts only one month after its second issue is not to the company's credit. Furthermore, the leaking of information to the stock exchange one day before the warning was published is purely and simply a matter of inside information.
Magic chair David Assia also admitted to "Globes" in an interview on Monday that someone knew something before everyone else knew it. "News of the profit warning did leak out", Assia said. "We made simultaneous announcements to the Israeli and US stock exchanges, but it looks as if it already leaked out the previous day."
In the same interview, Assia sounded eager to buy Magic shares in the event they dropped sharply on Nasdaq: "If Magic's share falls by 30%, I will support a proposal on the board of directors to buy the shares. I personally hold 7% of Mashov and 2% of Magic, and I will be glad to increase my holdings. It is an excellent share and a good investment, perhaps the best in the market."
Today it was discovered that Assia himself sold Mashov shares only two weeks before publication of Magic's profit warning. Assia sold Mashov shares for NIS 1 million at NIS 34.1 per share, compared with a price of NIS 25.9 today during trading, 24% lower than Assia's realization price. It should be recalled that Mashov holds 30.2% of Magic's shares and Assia holds 6.7% of Mashov and 2.1% of Magic.
It is true that the sum is considered relatively insignificant. Perhaps there is no link between the timing of the profit warning and the timing of the sale, and only a coincidence is involved, albeit an unpleasant one for Assia. On the face of it however, it does not look good.
David Assia explains these sales as a natural routine. "Every quarter I sell about NIS 1 million in shares, which I invest in start-ups. All my capital is actually invested in Mashov Computers and in Magic Software. My shares in Magic are blocked because of the issue, so I sold Mashov shares.
"My recent sales were actually a part of a series of share sales over six months. I sold in December, January, February, and March. I sell every quarter. There is nothing unusual here."
"Globes": Nevertheless, a sale just before publishing a profit warning…
"There is no connection to the profit warning. It just happened that at exactly that time I invested in something, so I sold a few shares. I hold 1.7 million Mashov shares, so I sold twenty-something thousand. That's no big deal; it's negligible. As I said, I recently invested in four-five start-ups, or maybe even 10, so I realized some shares to finance the investment. It's my money."
There is still a question of impropriety, even if only on the face of it.
"To give you an idea, last week Jack Dunietz (Magic CEO - Z.R.) and I were in the US to sign a giant deal, and the sale (of shares - Z.R.) was done before that. Actually, Dunietz and I were sure we would close that deal, and in addition another deal was planned. If these two deals had come off, we wouldn't have had to publish any profit warning. Unfortunately, we didn't manage to sign the two deals, and in the end the company even published a profit warning. At the time I sold the shares, however, there was no way I could have known that a profit warning would be issued. On the contrary, we were on the verge of completing two giant deals."
Published by Israel's Business Arena on June 21, 2000