The Tel Aviv District Court today convicted former Hasneh CEO Michael Miller of fraudulently inducing the acquisition of securities, obtaining by fraud in aggravated circumstances, fraud, and breach of corporate trust – in connection with Hasneh’s collapse in late 1992.
Miller was also convicted of three offenses involving inducing misrepresentation with the intention of misleading a reasonable investor; four offences involving false registration in corporate documents; four offences of misrepresentation by a senior corporate official; and one offence involving failure to disclose information by a senior corporate official.
According to the first count, in the course of preparing Hasneh’s 1991 financial statement, an actuary department employee used a mistaken index to calculate life insurance reserves, which reduced reserves by NIS 65 million.
The mistake was discovered a month before the annual financial statement was due, but Miller and actuary Ran Sheffer, who also headed Hasneh’s life insurance division, decided in March 1992 that the mistake would not be corrected in the 1991 statement, but over the next eight quarters.
Hasneh was in a difficult situation at the time, operating on a minimal equity, even after attempts had been made to create artificial capital through insurance deals of dubious business logic, and by cutting reserves to the lowest possible level permitted under the law.
Miller argued that not only was he not aware of the mistaken index, but that such a mistake had never taken place and could not have taken place, because it was unreasonable.
Judge Amiram Binyamini said that the use of a mistaken index had been proven beyond any reasonable doubt, as well as Miller’s decision not to correct it. Miller succeeded in preventing the correction, and the affair came to light only under the receivership.
The second count bears on the June 1992 agreement to sell 27% of Hasneh to the Ofer group for NIS 30 million. Miller participated in the negotiations with Yuli Ofer and Rafi Edri, signing the agreement on behalf of Hasneh.
The charge sheet says that Miller concealed information from Ofer and Edri, presenting Hasneh’s life insurance portfolio as its principal asset, although increasing the life insurance reserves by NIS 65 million, thereby correcting the mistake, would have turned the 1991 life insurance financial statement into a negative one. In its agreement with Cables, Hasneh stated that the financial statement appropriately reflected its business situation.
Miller also concealed from Ofer and Edri an evaluation that unearthed a NIS 74 million gap in Hasneh’s life insurance reserves in its 1991 financial statement. The prosecution argued that had Cables known of the gap in the life insurance reserves, it would not have bought a holding in Hasneh, thereby sparing itself the loss of its investment due to the sale of Hasneh’s operations to Clal and Migdal.
Miller claimed he was not involved at all in the negotiations with Cable, and that Hasneh had not conducted any negotiations at all with Cables.
Binyamini convicted Miller of fraudulently inducing the acquisition of securities, ruling that Miller induced Cables to buy Hasneh shares by misleading Cables and concealing from it essential facts.
Published by Israel's Business Arena on 27 February, 2001