Israel Securities Authority chairman Moshe Tery has slammed valuers. "Regrettably, quite a number of valuers have been dishonest. There have many cases in which valuations were used as a rubber stamp or the target is afterwards drawn around the arrow," he said at a Institute of Certified Public Accountants in Israel convention last night.
Tery cited a public company as an example, although he declined to name it, which acquired another company from its controlling shareholder. "18 months later, the public company sold the company at a loss of tens of millions of shekels.
"Unfortunately, this is not an isolated instance. I assert that there are quite a few other cases in which valuers revised their valuations after mistakes were brought to their attention, but amazingly, the original valuation was not changed because other parameters were altered."
Sources inform “Globes” that Tery was referring to Israel Land Development Company's (Nasdaq: ILDCY; TASE:ILDC) acquisition of NATALI The Israeli Company For Emergency Medical Services.
Tery said the Israeli capital market suffered from a serious lack of credibility, and without investors' confidence a market cannot exist. "The paradox is that it is the watchmen who should have the greatest interest in preserving investors' confidence, since the capital market is their bread and butter, and they're the first who will pay the price for investors' flight. But it is precisely the watchmen who are tempted to abandon their posts, due to shortsightedness."
Tery warned, "If the watchmen, including the valuers, do not act fairly, they'll be acting against their own interest, since there will be no need for them. Regrettable, in practice, experience shows us that many valuers are not operating with the integrity expected of them."
Tery said that under these circumstances, there was no alternative to the Securities Authority publishing guidelines when to attach a valuation to a financial statement, the minimum disclosure requirements for the valuation, and what the board of director's report should comment on regarding the valuation.
Tery included CPAs as such watchmen.
Tery said, "The Securities Authority will not hesitate to act with all its power to prevent a situation in which violations of accountants' independence lead to the perpetuation of unacceptable norms and the creation of a failed system that does not punish violators."
Published by Globes [online] - www.globes.co.il - on June 9, 2004