The trustee of the bond issued by Canadian real estate company Urbancorp in Tel Aviv, Reznik Paz Nevo Trusts Ltd., filed an application today for an injunction forbidding any disposition in Urbancorp's assets. Tel Aviv District Court judge Eitan Orenstein granted the application and issued the injunction. At the end of last week, Urbancorp filed for restructuring bankruptcy in Canada.
Orenstein, who apparently realizes that all the guardians of the public's money fell asleep on watch after Urbancorp raised NIS 180 million a few months ago, summoned all those concerned to his court for an urgent hearing at 9:00 tomorrow (Monday). Only two weeks ago, the controlling shareholder in the company, Alan Saskin, was in Israel, but was not called in by the Israel Securities Authority (ISA) for questioning about his conduct, despite the fact that his visit to Israel was widely covered by the business press.
Sources close to the affair told "Globes" that the ISA's examination that began after the report in "Globes" of Saskin's strange behavior is now directed at the watchdogs, that is, the auditors, legal counsel, bond trustee, and offering underwriters.
A few months ago, in an impassioned speech, Moti Yamin, head of the ISA Corporate Finance Department, warned investment managers against investing in overseas companies when there was no possibility of laying hands on their assets in the event of insolvency.
The origin of the Urbancorp affair lies in one of the more peculiar offerings seen on the hot Tel Aviv Stock exchange. The offering prospectus stated explicitly that the proceeds of the offering would be used to repay mezzanine bank finance guaranteed by the controlling shareholder. This meant in effect that Saskin was being relieved of guarantees he gave to a Canadian bank and was rolling the debt over onto Israeli investors. And the Israeli institutions took up the offering and stumped up the money without blinking.
In March, "Globes" revealed that Saskin, who had undertaken in the prospectus to expand the company's capital by CA$12 million, injected the cash in a questionable fashion, allowing the bank that lent him the money to withdraw it without notice, so that the cash injection had no practical significance. Following the report in "Globes", warning lights flashed at the ISA, and it started to investigate Urbancorp's conduct.
After a short while it emerged that an application had been made in Canada to retract Urbancorp's contractor's permit, which was reported late in Israel through a notice to the Tel Aviv Stock Exchange. Saskin, who came to Israel in order to explain what was going on, confirmed that he had repaid the company's bank loans but beyond that did not ascribe much importance to his behavior towards Israeli investors.
From conversations "Globes" has had with senior figures in the financial system who are familiar with the details of the Urbancorp affair, it would seem not inconceivable that the ISA will take enforcement action against Urbancorp's lawyers (who have meanwhile resigned), its auditors, underwriters and bond trustees, who they say either knew of the company's strange conduct and did nothing, or else preferred not to know and therefore took no steps to minimize the damage to investors.
It should be stressed that the ISA has its hands tied in these kinds of cases. It cannot prevent investors from buying securities if they want to buy them even if they have no control on what happens in the company if it becomes insolvent. It can demand transparency, which is what it has done in the case of Urbancorp. The warning by the head of its Corporate Finance Department should have deterred investors, but it came too late.
The sources with whom "Globes" spoke said that the watchdogs' behavior had no criminal aspect, but certainly smacked of defective management.
Published by Globes [online], Israel business news - www.globes-online.com - on April 24, 2016
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