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Property company Secom, a subsidiary of Shikun Ovdim, of the Housing and Construction group, which is owned by the Arison family, has been accused of abusing its connections with Bank Hapoalim (in which the Arison group is also a major shareholder) to the detriment of its partners in a property venture.

In a recent court ruling, which rejected Secom's argument, the judge wrote "There is a suspicion that Secom, acting as it did, acted not only in the interests of its partners, but also, and mainly, in the interests of its relationship with the bank with which it has family connections, and to its [the bank's] benefit."

Secom operates in the real estate sector, which has probably felt the last years' recession more than most parts of the economy, and the company, publicly traded on the Tel Aviv Stock Exchange, has taken the full force of the sector's malaise. While other companies pushed the exchange to new heights in a bumper year for stocks, Secom's share dropped 9 percent in 2003. The company recently announced a recovery plan, layoffs, cutbacks, credit rearrangements, and an agreement that its parent company Shikun Ovdim would be managing the firm from now on.

The accusation of conflict of interests centers on the Massof partnership, in which Secom held a stake. The joint venture built Massof House in Rishon Letzion's new industrial area, at a cost of NIS 106 million. A large part of the 30,000 square meters have either been sold or rented out. Four partners were originally in on the deal: Secom (31.6 percent), Poalim Real Estate Markets (part of the Bank Hapoalim group - 25 percent), Riplat (21.7 percent) and the publicly traded Zohar real estate company (21 percent).

Marketing the property moved slowly, and the partnership built up a debt of NIS 50 million with Bank Hapoalim, to whom the assets were liened. At the end of 2001, Poalim Real Estate Markets sold its share in the venture to Secom. On the very same day, the two companies - holding between them a majority stake of the Massof partnership - signed a deal in the name of the partnership, in which Secom would pay its share of Massof's debt to the bank, after which, Hapoalim will pass 56.6 percent of all the partnership's revenues directly into Secom's bank account. The bank thereafter acted on this agreement.

The other two partners discovered the deal only in mid-2002. They promptly demanded that Bank Hapoalim stop the transfers, leaving Massof's revenues in its own bank account. The two accused Secom of acting underhandedly in order to end the partnership.

Bank Hapoalim, on the defense, stopped paying over to Secom, but neither did it repay the NIS 30 million it had already paid the company under the terms of their arrangement. As the money dried up, Secom, in financial straits anyway, facing falling revenues and a bank credit squeeze, found itself in ever deepening trouble.

And although the partnership managed to sell some of the property for NIS 13 million, the interest on the debts was far higher than its yield on the sale.

Secom, now desperate, turned to the courts, to have the partnership pay over 56.6 percent of its sales on Massof House to Secom, and at the same time, to dissolve the partnership. In September 2003, Judge Hila Gerstel rejected Secom's request, and added a few harsh words. Secom "has no right to dictate to its partners the method of repaying monies that had been determined would go to the partnership's account, and it certainly has no right to place itself at the head of the creditors' list of the partnership." The judge criticized Secom's actions as taken unilaterally, ignoring its own agreements, and its partners.

At this point, Judge Gerstel hinted that Secom had acted primarily in the interests of the bank.

Secom is appealing the ruling.