Where did the millions go?

It could have been a real estate success story. It had all the requisite elements: an exclusive tower on the Netanya coastline; an Israeli soccer player-turned-real estate developer; the soccer player’s wife from Caesarea, who is brilliant in marketing; and an ultra-Orthodox millionaire from Britain who provided the cash. After all, how could you have a story like this without the foreign residents, who are lapping up homes in the country at record prices?


Now it turns out that if you put all these ingredients into one pot, you don’t always get something tasty. Sometimes you get a bitter concoction. And in this case, the parties are now being dragged through the court following allegations of embezzlement of millions of shekels and funds miraculously transferred to Swiss bank accounts.


	High rise of contention: The Netanya building at the center of the case.
	Photo by: Ofer Vaknin

The story begins with a meeting in 2006. Jonathan David Faith, a British businessman, was interested in investing in Israeli real estate. Faith was not short of funds: He is a well-known philanthropist and his father founded the British shoe store chain Faith Shoes, which sold in 2005 for 64 million euros. That year he also signed an agreement with former soccer player Benny Rubinstein to cooperate in building a tower at 20 Nitza Boulvard, Netanya.

The two agreed that Rubinstein would manage the project. But Rubinstein did not come alone: He also involved his wife and partner, Sarah Rubinstein, a real-estate agent from Caesarea. Nechasei Hayam, her real estate firm, became the sole agent marketing the properties in exchange for a 2% commission on each unit sold.


The developers decided to build a luxurious tower on the coastline, rising to a height of 28 floors and including 70 units. In May 2006 they purchased the beach front hotel Golden Waves and applied for planning permission to build a new structure on the site. Faith owns 80% of the rights, according to the agreement, while Rubinstein holds 20%.


So far 57 of the 70 homes were sold and buyers are to take possession within the year. Benny Rubinstein told TheMarker last year that half of the dwellings sold since the project was first marketed were bought by foreign residents. The developers reported income of NIS 180 million from sales of 49 units, putting the average price of one at the time at NIS 3.67 million. One was sold for a cool NIS 23.5 million − the most expensive home sold in Netanya in 2009. This is a penthouse suite spanning 640 meters, including an additional 400 meters of balconies and private swimming pool.


Overheads rocketed
<text>However, the brisk sales and the money rolling in did not manage to preserve the idyllic partnership: Last week Faith sued Sara Rubinstein and Nechasei Hayam for NIS 4.5 million at the Petah Tikva District Court. The lawsuit filed by attorney Boaz Edelstein, Amitai Erlich and Amiad Goldbenberg of Goldman, Erlich, Gaver, Edelstein and Co. reveals how one thing led to another until Faith noticed serious irregularities in the funds associated with the project: He claims to have noticed expenses over-running the basic business agreement of NIS 84 million, with a resulting erosion of expected net profit from NIS 96 million to just NIS 48 million.


“These figures, which surprised the claimant, aroused his suspicion of financial and other irregularities in Rubinstein’s management of the project,” the suit states.


Faith appointed accountant Amikam Baltberg, an investigative audit specialist, to examine the project’s finances, and engineer Moshe Rejuan to examine its plans and structure.


“Regrettably, it became apparent to the plaintiff that Benny Rubinstein took advantage of the confidence shown in him and managed the project according to his own and his family’s interests, while he and his wife pocketed vast sums,” the documentation notes.

Faith contends that the Rubinsteins took advantage of his being a foreign resident and not experienced in the local real estate market, and of their being entrusted with the project, to embezzle funds contrary to the agreement.


Playing both sides
<text>Faith’s main claim is that Sarah Rubinstein “played both sides”: She received a commission from project funds on the sale of every unit, and simultaneously demanded up to 2% in commissions from the buyers. He claims that this contravenes the real estate agents’ law, which states: “an agent will not participate in a real estate transaction if he has a personal interest in the real estate or the transaction, unless he has declared his personal interest to the client and received his written consent.”


Faith further alleges that there was a conflict of interest on Rubinstein’s part, which was “liable to make the marketer serve his own interests by lowering the price of the home or giving additional upgrades, in order to ensure receipt of his commission.”
</text>

Initially, Faith had no sound evidence for his suspicions, and thus hired a private investigator to pose as a potential buyer for the penthouse in the project and to record the conversation with Sarah Rubinstein. The details are riveting, and appear to suggest that Rubinstein offered the fake buyer a substantial discount on the price of the home on condition that an additional $1 million be transferred abroad: The transcript has Rubinstein offering to “open a Swiss bank account” to facilitate a payment, and stating “we won’t formally declare this” and that “this will stay behind closed doors.”


“Rubinstein seriously breached the trust placed in her and was caught red-handed, trying to stick her hand in the project’s coffers,” the lawsuit alleges. Furthermore, the manner this was done suggests such an arrangement may have been made on previous occasions. “The offer amounted to taking funds meant for the project account and diverting them to Benny and Sarah’s private bank account abroad, and in conjunction, offering a fictional discount in an attempt to also defraud the tax authorities.”

Faith claims he discovered that the price of several units sold in the project had been reduced, and that others had been upgraded at no additional cost after the sale.


“This fact raises grave cause for concern that the defendants acted in these instances out of a conflict of interest and acted for their own benefit by giving a discount or individual upgrade to the buyer at no extra cost, so that the buyer would pay them their commission,” the suit states. “So, for instance, the defendants took it upon themselves to upgrade a dwelling purchased by one family on the eighth floor and ‘exchange’ it with another on the 11th floor at no extra charge − and had the gall to charge the project a double commission for the sale of two apartments.”


Faith also claims that Sarah Rubinstein charged commissions according to a dollar exchange rate that was higher than the representative rate at the time, and that between 2007 and 2009, the project spent NIS 830,000 on advertising costs. He claims that since Rubinstein was charging the buyers a commission, she should have borne the cost of advertising herself.


But Faith’s complaints do not end there. He also discovered, he says, that Rubinstein charged the project a commission for homes she purchased herself, or that Faith purchased for himself, when she had not been in any way involved in selling them.


“The height of absurdity was when Sarah and her husband picked out a place for themselves in the project, and Faith was supposed to pay them an imaginary commission for the unit,” according to the lawsuit.


Hidden information


Faith claims to have begun losing confidence in Rubinstein in 2009, and in October of that year he began to request copies of project-related documentation. His lawsuit asserts that to date, the couple have yet to provide him with either documents, computer records or receipts. Also, the couple refused to provide him with the correspondence between themselves and buyers of homes in the high-rise. A computer given to Faith for investigative purposes had had the relevant data erased from it. “Such lack of information is unprecedented in building projects, particularly of this kind,” the suit notes.


In light of his suspicions, Faith asked Rubinstein to resign from marketing the project and in December 2009 the two sides agreed that arrangements involving the marketing would be worked out in advance.


Now Faith claims that the couple acted disingenuously by never informing him of the commission that was charged to buyers, and he therefore demands the reimbursement to the project coffers of all commissions paid as well as other project expenses, which according to his lawsuit total some NIS 4.5 million.


Attorneys David Gideoni and Dr. Itay Paldor of Tadmor and Co., representing Sarah Rubinstein and Nechasei Hayam, replied: “This is a specious and baseless claim. Ms. Rubinstein and Nechasei Hayam do not owe the plaintiff a thing. On the contrary: Ms. Rubinstein and Nechasei Hayam promoted the project very successfully and worked night and day to bring it to fruition. They are convinced that the lawsuit will be seen to be nothing but an attempt to blacken their name, and evade paying sums which are their rightful due as a result of the considerable work they put into the project and their decisive contribution to its success.


“The claim was meant to preempt their own lawsuit to obtain the considerable sums owed to them. Indeed, even the attorney representing the Faith group in Israel, John Harvey Burton, was forced to sue for payment of approximately $2.5 million [owing him]. The recording mentioned in the suit is also specious. This is a failed attempt to entrap Ms. Rubinstein and compel her to commit illegal acts. All claims regarding the recording and the ‘transcript’ attached to the indictment will be heard in court.”