Israel Cracks Down on Largest Telecom Firm Bezeq; CEO, Two Netanyahu Allies Arrested

Communications Ministry director Shlomo Filber suspected of providing company’s controlling shareholder Shaul Elovitch with confidential documents; both are close to Prime Minister Netanyahu

Bezeq CEO Stella Handler (left) and controlling shareholder Shaul Elovitch.
Bezeq CEO Stella Handler (left) and controlling shareholder Shaul Elovitch. Eli Dasa, Eyal Toueg

The controlling shareholder of Bezeq, Shaul Elovitch, and Communications Ministry Director General Shlomo Filber were both placed under house arrest as an Israel Securities Authority investigation cracked down on the country's largest telecommunications company.

The widening probe of Bezeq now includes what it being called a secret channel for sensitive information between Elovitch and Filber, both considered close to Prime Minister Benjamin Netanyahu.

Elovitch's two-day house arrest, which was only revealed on Thursday, was extended for nine days while Filber was put under house arrest for two weeks. Bezeq CEO Stella Handler was also placed under house arrest for nine days, as was Elovitch's son Or and a former Bezeq director, Amikam Shorer. A number of other company executives were also questioned.

A document the ISA submitted to the court asserted that it had obtained evidence suggesting that Filber was working in the interests of Bezeq by providing confidential government documents to to Elovitch.

“The findings of the investigation raise serious suspicions that in the framework of his work he [Filber] acted systematically, deliberately and repeatedly, while concealing his activities from the minstry’s professional and legal staff, to priovde Bezeq with confidential documents as well as internal position papers, correspondence and documents for interminsterial deliberations,” the ISA document said.  

In return, the suspects proposed changes in to the documents to support Bezeq’s interests, which later served as the basis for official deliberations.

Most of those under house arrest are subject to a travel ban for 180 days and were ordered to have no contact with Bezeq employees or anyone else under investigation. Filber was ordered to stay away from any and all computers, except with permission of the ISA.

“No doubt that this is an unusual request since [Shaul] Elovitch was released at the beginning of the investigation. However, the investigation has developed and the results have led the securities authority to seek a house arrest,” said Tel Aviv Magistrate's Court Judge Ronit Poznanski-Katz. 

“There is a reasonable suspicion that a different picture has emerged now than what was originally presented to the court,” she said after the ISA warned that the suspects might try to leave Israel or disrupt the investigation.

The house arrests were the latest dramatic development in case that surfaced three weeks after ISA investigators raided the office of Bezeq and its satellite-television unit, Yes, and called in Elovtich and others for questioning.

The initial impetus for the probe was Bezeq’s purchase of Elovitch’s stake in the Yes joint venture, which the ISA alleges was conducted using erroneous cash flow figures to artificially boost the value of Elovitch’s Yes shares. 

Earlier this week, the ISA said it had expanded its investigation to the business relationship between Yes and another Elovitch company, the satellite-services provider Spacecom. They suspect that Yes bought satellite services from Spacecom at an inflated price and without exploring alternatives.

Meanwhile, the State Comptroller issued a report on Wednesday that sharply criticized the Communications Ministry’s relations with Bezeq. Filber, an associate of Prime Minister Benjamin Netanyahu who also served as communications minister for much of the time covered in the report, was singled out for especially sharp criticism.

The report also said that the prime minister himself did not reveal all his conflicts of interest to the comptroller and hid his ties with moguls such as the elder Elovich.

On Thursday, attorney Eran Shaham, representing the ISA, told the court that investigators were now looking into the back channel between the Communications Ministry and Bezeq that gave Shaul Elovitch access to proprietary information.

Netanyahu's friendship with Elovitch goes back many years. While he was communication minister, he involved himself – directly and indirectly – in a long list of matters concerning Bezeq. The prime minister also benefitted from positive media coverage from the Walla news website, which was also owned by Elovitch, as was first exposed in Haaretz.

Shaham asserted that the information passed through this back channel was worth hundreds of millions of shekels to Bezeq by giving it a “tactical business advantage.”

“An array of emissaries was set up with those who were supposed to be independent. The operation was lengthy and ongoing,” said the attorney. “Elovitch created the mechanism together with senior executives. Some were promoted. These are senior officials both in the civil service and within the company itself.”

Jack Chen, the attorney representing Shaul Elovitch, said his client had no intention of disrupting the probe but investigators were needlessly working at the expense of the investing public. Elovitch, he said, was cooperating with the authorities, which no one disputed.

Shares of Bezeq and other Elovitch companies have tumbled since the probe began. On Thursday, Bezeq shares ended down 1.3% to 5.64 shekels ($1.59), a 13% decline in three weeks.

“Since the beginning of the investigation, the damage to the public has come to 2.13 billion shekels,” said Chen. “[The ISA’s] petitions are significant and will be construed as a lack of trust and there will be further declines in value [of the shares].”