Social Affairs Minister Haim Katz was questioned by the Israel Securities Authority late on Monday on suspicion of illegal insider trading in connection with last year’s merger of the two real-estate companies Nitsba and Airport City.
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Katz is alleged to have gotten advance information on the imminent takeover bid from Mordechai Ben-Aryeh, who had been a financial adviser to the two companies. Both bought Nisba shares just before the company announced the move last July, from which ISA investigators estimate the two made a profit of some 290,000 shekels ($76,000).
The ISA said that Katz and Ben-Aryeh are suspected of other offenses that are still being investigated. In the meantime, it said, Katz was cooperating with investigators. Sources close to Katz, who asked not to be identified, said they were confident that the matter will be clarified in the coming days in favor of the minister.
Ben-Aryeh was arrested by the ISA and given conditional release after depositing both his passport and a bank deposit of 1 million shekels with the authority. He also undertook to make himself available for questioning whenever required, and to refrain from all contact with the other suspects in the case.
At the center of the probe is a July 5, 2015 announcement by Nitsba to the Tel Aviv Stock Exchange that it had signed an agreement to merge with its parent company, Airport City, in a deal involving cash and an exchange of shares.
The deal also called for Nitsba to make a tender offer for the public’s shares in Airport City, at a price 23% above its 57.34-shekel market price the day before the announcement. Nitsba shares rose 17% in response.
Investigators allege that Ben-Aryeh knew about the merger terms and bought shares before it was announced, in violation of the law and company policy. In addition, he passed along the information to Katz. The ISA’s computer systems flagged Ben-Aryeh’s suspicious share purchasing.
A former labor union leader, Katz entered the Knesset 10 years ago as a Likud MK and joined the government last May as social affairs minister just six or so weeks before he allegedly bought the shares. Investigators said Katz and Ben-Aryeh are personal friends as well as long-time business associates.
Prior to the merger, Airport City controlled 59% of Nitsba, a property company founded in 1995 by members and retirees of the Egged bus company. Institutional investors controlled another 15.5% and the rest was owned by the public. Airport City purchased control of Nitsba from the original owners in 2006.
Ben-Aryeh initially served as financial adviser to Nitsba, and after 1999 to Airport City. The joint company is controlled by Haim Tsuff, a close friend of businessman Kobi Maimon, who also serves as an adviser to the company.
The government’s conflict-of-interest rules bar ministers and deputy ministers, including their immediate families, from holding cash in excess of 200,000 shekels or tradable securities. Anything in excess of that as well as the securities must be managed by an independent trustee as a blind trust within 60 days after they have been taken office, which in Katz’s case was last May 14.
The ISA did not indicate who actually conducted the share trade for Katz, but according to the dates it provided they occurred within the 60-day limit for ministers to transfer their money to a blind trust. In addition, the ISA did not say how much money Katz spent buying the Nitsba shares, however their 290,000-shekel combined profit indicated that their combined buying amounted to 1.7 million shekels.
Moreover, the rules bar ministers and their families from instructing trustees to hold, buy or sell securities, apart from one-time standing orders regarding the kinds of investments the trustee can make and the maximum weighting of any component of the minister’s investment portfolio. Trustees are barred from reporting any information about their investments while the minister is serving, apart from returns earned on transactions, taxes paid and the overall value of the portfolio.
Katz provided the state comptroller a capital declaration last year, which is now likely to be reexamined.