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Dressed in his prison browns, a crestfallen Gregory Lerner appeared in Tel Aviv District Court last week for his first evidentiary hearing on charges that he stole NIS 62 million from 2,500 investors. In the 1990s, the media were full of stories about Lerner's beautiful women and political hangers-on, and the convoy of armored Mercedes vehicles loaded with security guards toting submachine guns that would escort him; on Sunday morning, it was armed prison guards that were protecting him on all sides.

Some fifteen minutes before the hearing was to begin, prosecutors Nadav Asahel and Marina Chervatzki were still getting ready to screen two videos on a large screen set up in the courtroom; the films documented meetings Lerner held with investors in 2006, when he tried to reassure them in the wake of his conviction that year of having swindled two businessmen out of a million dollars. At those meetings, held in Tel Aviv's Textile House office block and a restaurant in Ashdod, Lerner promised his investors that their money was safe and claimed that he was being persecuted by the Israeli establishment. He declared that the company in which they had invested was thriving, and their investments were secure. Four days after the meeting in Ashdod, he fled to Paraguay with the money.

The prosecutors knew they had a strong case. Six of the 595 prosecution witnesses were at the hearing. Judge Chaled Kabub knew he could expect a long day ahead; since the proceedings were being taped, he promised the stenographer that she would have nothing to do for the rest of the day. So it came as a surprise when, right at the start of the hearing, Lerner's attorney, Eitan Inbar, coolly announced, "The defense does not intend to present evidence in this case." He handed the judge a written document and explained, "Tomorrow, a petition will be served to the High Court of Justice on the matter of whether the plea bargain that was agreed to by the two sides after year-long negotiations is binding on the state or not." To the stenographer's dismay, he asked that his statement be incorporated into the transcript.

For nearly a year, the prosecution had conducted negotiations with Lerner on a plea agreement. Finally, they arrived at an agreement in principle whereby Lerner would reimburse his victims and be sentenced to nine years in jail. At the last minute, however, State Prosecutor Moshe Lador informed Lerner's attorneys that the prosecution would not sign the plea deal.

The charges against Lerner are that in the years 2004-2006, the defendant placed ads in the Russian-language Israeli media calling for investors in his commercial oil company. He described himself as a businessman with expertise in international oil trading, and promised returns on investment of 2% per month and 29% per annum. Some 2,500 investors, mostly from the former Soviet Union, answered the call and believed in him. In actuality, the company performed no business-related transactions apart from raising money and smuggling it abroad.

Kabub understood that Inbar's proclamation was tantamount to confessing to the felonies of fraud, embezzlement and money laundering. For the record, he asked Inbar: "Do I understand correctly that you are saying that your client does not deny the charges against him?"

"That is correct," the defense counsel replied. "After the pleadings are filed, my client will plead guilty to the charges, but he asks not to allocute."

The astonished Kabub sought to ascertain that Lerner understood the significance of what his lawyer was saying. Lerner responded through an interpreter: "I agree with everything my lawyer says."

Kabub wanted to make doubly sure: "The indictment charges him with a wide range of felonies," he cautioned. "The defense's action means that the defendant is not contesting the indictment."

The judge asked the interpreter to explain this to Lerner carefully before he replied. "I consent to everything my lawyer said," he reiterated.

Kabub still had difficulty believing this. "Is all the evidence that the prosecution intends to present during the trial acceptable to him?" he asked the same question using different words.

This time, Lerner jumped up and answered the judge in Russian. "Da, da, da," he said, gesticulating with his hands.

Prosecutor Asahel moved that Lerner allocute and be convicted on the spot. Kabub demurred, ruling that he should be permitted to petition the High Court before his fate is sealed. "Since a dramatic development has taken place in this case," Kabub ruled for the record, "the dates set for this trial are now irrelevant."

He set a date for sentencing on June 1; and with this, according to sources familiar with the case, the parties were spared about a year and a half of court appearances.

Asahel could barely conceal his disappointment. "Couldn't you at least have given us notice?" he asked Inbar.

"Believe me," Inbar replied, "the decision was made just this morning, at 7:30 A.M." Coming to the conclusion that the evidence against Lerner was airtight, the defense preferred to confess before the evidence was heard, so that the judge would take into consideration the saving of valuable court time when passing sentence.

They filed their petition the following day, arguing before the High Court that "the prosecution conducted plea negotiations in a slipshod manner, in bad faith and reneged on its governmental promise." The defense asked the court to compel the prosecution to honor the plea agreement, and suspend legal proceedings against Lerner until it rules on the petition.

According to the defense, after prolonged negotiations with the Tel Aviv district prosecutor for taxation and finance, attorney Ella Rubinek, the latter announced that she is not really authorized to conclude the negotiations. The petition reveals that as a result of the first round of talks, the prosecution agreed to Lerner's serving most of his sentence consecutively with the term he is now serving for his previous fraud conviction; after which he would serve an additional two years. It was further agreed that he would compensate his victims some NIS 8 million, in addition to the cash that was seized in his hotel room in Paraguay.

In the third round of negotiations, the prosecution withdrew its previous agreement and insisted that Lerner serve a complete nine-year prison term after his current term ends, rather than consecutively. He would be granted an extension of four months to raise the money to pay back to his defrauded clients.

This agreement, too, was eventually overturned by Lador. The defense argues that the prosecution's behavior was a radical departure from the norm. In its pleadings, the defense recalled the case of Boaz Yona, who had swindled clients of his Heftsiba construction company, and complained of a double standard. Why did the prosecution agree to a plea bargain in the case of Yona and not Lerner?

The defense also cited a court ruling in a previous case against Lerner: "The defendant suffers from chronic alcoholism, a condition that impairs, to one degree or another, his judgment."

It was his addiction to alcohol that led to Lerner's arrest in Paraguay, to where he had fled from Israel using a false identity. He was hospitalized after collapsing from drinking to excess, and there his true identity came to light. When he was arrested in March 2006, approximately 1 million euros and $118,800 was discovered in his hotel room. He was extradited to Israel; but the money, which was classified as evidence, has yet to be returned.

This was not the first time that Lerner had been arrested after an attempt to flee the country. In 1997, he was detained at Ben-Gurion International Airport on his way to the United States, in possession of satellite telephones and documents of companies he headed. He was suspected of ties with leaders of organized crime in Russia, as well as involvement in the slaying of a bank manager in Russia and the attempted murder of other bankers.

The murder conspiracy allegations never made it into his indictment in Israel, but Lerner was convicted on the grounds of his confession to 13 counts in the indictment, including defrauding three banks in Russia to the tune of some $48 million and the attempted bribery of Israeli politicians - among them, Nissim Zvili, Shimon Peres and Natan Sharansky - in an attempt to secure a license to establish a bank in Israel. Lerner was sentenced to six years in prison - a term that he completed - and fined NIS 5 million.

Now that he has confessed to another long string of felonies, it is clear that he is facing many more years in jail. Sources close to the case say that he is resigned to the fact that he will be spending more long years behind bars. Previous court rulings in similar instances do not bode well for Lerner, since they determined that agreements reached in negotiations that were never finalized in a plea bargain are not binding.

Still, Lerner's attorneys are arguing that the agreements did reach the final plea bargain stage, only to be rescinded after the fact in a display of bad faith by the prosecution.

In response, the Ministry of Justice issued a statement claiming that "no plea bargain was ever recognized in this case, and certainly the state attorney never rescinded an unrecognized agreement at the last minute."