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Ron Lubash and Amir Kess, the managers of Markstone, began meeting with Israeli institutional investors yesterday, in an attempt to control the damage after the fund's other founder, Eliott Broidy, pleaded guilty to misdoings and resigned on Thursday.

Markstone's new chairman, Dan Gillerman, is joining some of the talks.

Gillerman yesterday called the Broidy incident a "tragedy" and "unfortunate," but said Markstone would survive. "I don't see any connection between a very isolated incident that happened thousands of miles away (from Israel) and Markstone's market performance," he said.

Gillerman said he would use all his energy to restore investors' confidence in the fund, and he does not anticipate any investors backing out of its investment funds.

Several Israeli institutionals, including Harel and Phoenix, have invested their clients' pension savings in Markstone.

Lubash and Kess told investors they understand the gravity of the situation and promised they would work very hard to restore investors' faith. They also promised to provide any requested information or clarifications.

They also said the events in New York did not affect the fund's Israeli investments, and that investors would not lose any money.

However, Lubash and Kess have quite a lot to worry about, as the fund's prospectus from 2003 clearly states that if one of the managers is convicted of fraud or other serious crimes, a vote by two thirds of the funds' investors could force the liquidation of the fund. For now, Broidy has of yet only pleaded guilty, and there is no final verdict.

The office of the Finance Ministry's commissioner of capital markets, insurance and savings said: "We are looking into the matter. The Israel Securities Authority referred the matter to the treasury."

Harel and Phoenix declined to comment, while Menorah-Mivtachim, which invested $5 million in Markstone, said: "We are examining the matter."

The U.S. Security and Exchange Commission is investigating possible ties between Broidy and the head of the CalPERS pension fund, the Sacramento Bee reported.

New York Attorney General Andrew Cuomo said Markstone was still being investigated. However, Gillerman said the company was not being probed.