Spate of securities fraud probes hits Israeli listed companies

Menachem Weinberg  photo: Eyal Izhar

Suspicions and scandals concerning seven listed companies, their officeholders, or their controlling shareholders were reported within a few days.

The local capital market had a tumultuous week, with a string of reports about investigations and suspicions concerning senior figures in public companies. The biggest headlines were about a broad investigation conducted by the Israel Securities Authority involving insider trading. The key figure in this investigation is financier Menachem Weinberg, known to stock market veterans as one of the owners of investment company Danbar Technologies, which he and his partners sold to contractor Jacob Engel 20 years ago. Within a few days, suspicions and scandals involving no fewer than seven companies listed on the Tel Aviv Stock Exchange (TASE), their officeholders, or their controlling shareholders, have been reported. It cannot be ruled out that these investigations will be extended to additional companies and players in the market.

These are the main developments in the scandals and suspicions that dominated the market this week:

Monday, February 18

Menachem Weinberg, CPA, was arrested and questioned in an investigation into suspicions about insider trading involving TASE-listed companies in 2016-2018. The Securities Authority suspects that Weinberg, a capital market veteran, received inside information from senior figures in several public companies, and used it to make profits. It is suspected that Weinberg systematically used inside information in deals amounting to millions of shekels in securities of various companies, and also gave the inside information to other parties in some cases.

Tuesday, February 19

Four TASE-listed companies - real estate company Summit (TASE: SMT) and medical companies Clal Biotechnology Industries (TASE: CBI), Allium Medical Solutions (TASE: ALMD), and Kadimastem (TASE: KDST) - reported a Securities Authority investigation into insider trading. The companies' offices were searched and officeholders were questioned. The most prominent person questioned was Zohar Levy, controlling shareholder of Summit, the largest of the four investigated companies in terms of market cap. He is suspected of insider trading. The Securities Authority alleges, "Findings came to light during the investigation supporting the suspicions about his involvement in offenses."

There has been a connection between Levy and Weinberg for years, dating to the sale of the controlling interest in Danbar in the late 1990s to Engel, Levy's son-in-law (who was then CFO of the Engel group) for $40 million.

The suspicions against Levy in the current affair are linked to two reports in August 2018 by Summit, in which it first reported an increase in the value of the investment real estate of its Summit Germany subsidiary (by €92 million), followed a few days later by the release of positive financial results for the first half of that year. Levy is suspected of giving Weinberg information about these reports before they were published (the published reports led to a rise in Summit's share price).

Project contracting company Nextcom (TASE: NXTM) reported on Tuesday that investigators had come to its offices with a search warrant as part of a police investigation "concerning fraud and other offenses." Nextcom provided no details in the matter, stating, "The company has no additional information about the substance and circumstances of the investigation."

The shares of the five companies responded to the surprising announcements on Tuesday with substantial falls, which have since extended to 4% (Summit), 7% (Clal Biotechnology), 13% (Allium Medical), 16% (Nextcom), and Kadimastem (22%).

Wednesday, February 20

Weinberg appeared at the Securities Authority investigative department for another day of questioning, and Kadimastem CEO Yossi Ben-Yossef was also arrested for questioning on suspicion of offenses under the Securities Law, including insider trading, securities fraud, and reporting offenses involving Kadimastem. It is suspected that Ben-Yossef gave Weinberg inside information about Kadimastem's reports before they were published. Weinberg allegedly used this information to make deals in Kadimastem's securities before the report to investors. The Securities Authority also suspects that Weinberg and Ben-Yossef fraudulently and illegally extracted hundreds of thousands of shekels from the company treasury, while concealing the destination of the money.

It was also learned on Wednesday that the Securities Authority questioned under caution a senior officeholder in underwriting company Rosario Capital on suspicion of using insider information about the securities of several public companies.

Late Wednesday, PLT Finance reported that its controlling shareholder, Sharon Fallaci, was summoned to give evidence in the framework of an investigation against a third party, and that while he was giving evidence, "It was decided to question him under caution about an offense of abetting money laundering by the third party, which did not involve the company." According to a legal opinion he obtained, Fallaci claims that "No grounds whatsoever that a criminal offense had been committed were presented to him in the questioning," and that the investigation was not conducted legally.

Shortly afterwards, Shapir Engineering and Industry (TASE: SPEN) reported that an investigation had been opened by the European Commission "concerning alleged fraud" in the course of a project by its subsidiary in Romania (Shapir Structures Romania). According to Shapir, the investigation concerns violation of a performance contract "due to alleged assignment of work in the project to Shapir Structures Romania in violation of the provisions of the contract."

The project involves the planning and performance of renovation and reconstruction of the DN-18 Highway in Romania, in which arbitration took place between the company and the party commissioning the work - the Romanian government road building authority. Shapir, one of the largest project and infrastructure companies in Israel, is controlled by the four Shapira brothers. Shapir said that its subsidiary could respond to the allegation before conclusions were drawn in the investigation, and that the company "was considering the query it had received and was weighing the measures it would take in the matter."

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Menachem Weinberg  photo: Eyal Izhar
Menachem Weinberg photo: Eyal Izhar
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