Shaul Elovitch, the controlling shareholder of Bezeq, was ordered released by Tel Aviv Magistrates Court on Wednesday but was barred from entering Bezeq’s headquarters and subjected to other conditions, as a wide-ranging Israel Securities Authority investigation marked its second day.
Elovitch was also barred from the headquarters of his Eurocom group, from meeting with Bezeq board members or executives, and from leaving Israel. He was also ordered to deposit a 5 million-shekel ($1.4 million) guarantee.
Two executives of Bezeq’s Yes satellite television unit were placed under more severe restrictions by the court. CEO Ran Eilon was put under house arrest, given a six-month travel ban and ordered to deposit 1.5 million shekels. Chief Financial Officer Michael Neumann faced the same restrictions and was told to make a 700,000-shekel deposit.
Most of the conditions for the three – the central figures in the Security Authority’s investigation – remain in force until Friday, the court said. Lawyers for the three agreed to the conditions, but Jack Chen, representing Elovitch, stressed that their consent did not signal they accepted the allegations. “We reject them categorically,” Chen said.
The three are suspected of fraud and breach of trust, corporate managers’ offenses, receipt of fraud and reporting offenses in connection with Bezeq’s 2015 acquisition of Yes, in which Elovitch had a majority stake. Elovitch and Neuman are also accused of obstructing legal proceedings.
Security Authority investigators allege that over 2015 and 2016 the three were among a group of Bezeq and Yes executives who provided erroneous information on Bezeq directors and shareholders in connection with the deal, in which Bezeq bought Elovitch’s stake in a deal that valued Yes at more than 1 billion shekels.
“Elovitch, by virtue of being the controlling shareholder and officer in the companies, was on both sides of the fence in the transaction, and it is believed that he acted in a conflict of interest,” the Secuirty Authority told the court on Wednesday.
The authority noted that other executives were being questioned and that more senior figures in the Elovitch group would be asked to appear.
The investigation surfaced on Tuesday when Security Authority investigators raided the offices of Bezeq and other Elovitch group companies and brought the key suspects in for questioning. The probe is in its early stages, but officials were concerned that news of it was leaking out and decided to go public.
Bezeq's shares weather storm
Shares of Bezeq, Israel’s biggest telecommunications company and the heart of Elovitch’s business group, held relatively steady on Wednesday in heavy trading after falling sharply the day before. They ended down just 0.2% at 6.16 shekels while shares of its parent company, B Communications, rose 0.2% to 72.16.
Wednesday’s hearing began at about 4 P.M. in the absence of the suspects, who were still undergoing questioning by Security Authority investigators. While that enabled them to avoid press photographers, the authority’s legal adviser, Eran Shaham-Shavit, said officials hadn’t tried to spare them the embarrassment.
Although no details of the Security Authority probe have been reported, they appear to center on the Yes acquisition, which was approved by shareholders in March 2015.
Bezeq retained Merrill Lynch-Bank of America to do an independent valuation of the deal, which put the satellite TV providers’ worth at just 250 million even after building into its figure future growth. In fact, Yes has shrunk since 2015 amid intense competition in the multichannel TV market.
Merrill Lynch assigned an even higher, 680 million-shekel value to Yes by adding in the “synergies” from being wholly owned by Bezeq. Merrill Lynch recommended that Bezeq pay only the stand-alone value of the company in cash and pay the rest as milestones as the synergies did or didn’t develop, but the board opted not to do that and paid in cash in full.
A board subcommittee that should have reviewed the deal independently failed to do so and Bezeq never examined the options of not buying the Elovitch shares at all, or only part of them. In the end, however, only one Bezeq director, Rami Nomkin, voted against the deal.