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If Bank Leumi is to sell Psagot-Ofek, the biggest mutual fund management company in Israel, to York Capital Management ? first Psagot's successful CEO, Gabriella Ravid, has to resign, the Israel Securities Authority has ruled.

Its ruling sent the Israeli capital market scene into complete shock. Gabi Ravid is considered the most dominant and successful CEO in the capital market. The success of Psagot-Ofek, which has become the country's biggest fund, is attributed mainly to her.

Six months ago Leumi agreed to sell Psagot-Ofek to York, but the deal is still in closing stages. The authority has made the sale conditional on Ravid and her deputy, Danny Zilbiger, stepping down.

The authority told York that Ravid and her deputy would not be able to carry on managing the group because of an investigation which it has been running for the past three years concerning suspicions of consultancy violations at the bank.

Recently, the State Prosecutor's Office has decided to indict Ravid, Zilbiger, and others. The indictments are currently on hold pending hearings.

The investigation at Bank Leumi began after a new Psagot fund raised NIS 1.7 billion on its first day in the summer of 2003, almost all of it from Bank Leumi branches. In retrospect the fund was not considered extraordinary enough to warrant such enormous investment based only on its merits, which aroused suspicion that it had been plugged in contravention of the rules.

The securities authority warned the bank that it seemed to have broken the law, which obliges the banks' investment advisers to give objective advice. Yet two months later the Leumi Pia fund raised NIS 700 million in one day, mostly from Leumi clients.

Following this the securities authority opened an investigation, which turned up suspicions that Leumi advisers received illicit perks from the Leumi mutual funds, in exchange for which they purchased the funds for the bank's customers.

One might assume that Ravid's presence was also a factor in York's decision to buy Psagot-Ofek six months ago. Now Bank Leumi is concerned York will pull out of the deal.

Bank Leumi refused to respond for this report.