How Netanyahu's Steel Shares Miraculously Quadrupled to $4 Million

Prosecution mulls criminal probe into Netanyahu share profits from cousin's company, Israeli media says

File photo: Prime Minister Benjamin Netanyahu speaks during a meeting with U.S. Secretary of State Mike Pompeo, in Jerusalem, Israel, March 20, 2019.
Jim Young/AP

The State Prosecutor’s Office is considering launching a criminal investigation into Prime Minister Benjamin Netanyahu over the profits he made on his investment in shares in the Texas-based SeaDrift steel factory that was managed by his cousin, Israeli channels 12 and 13 reported Wednesday.

According to law enforcement officials who were also involved in investigating the so-called submarines affair (Case 3000), Netanyahu was in a "clear conflict of interest" at the time.

Netanyahu’s shares in SeaDrift quadrupled in value over the course of four years, from 2007 to 2010, even though the factory did poorly in that period, it was disclosed. These new details raise additional questions surrounding Netanyahu’s investment, and suggest the terms he received may have hidden a gift worth millions of shekels.

>> Pocket money, loans and millions for legal advice: Has Netanyahu's wallet finally been found? ■ Reopen the investigation into the submarine affair | Editorial  

Netanyahu declined to respond to the initial report by TheMarker about his shares quadrupling in value. His Likud party responded after the TV report Wednesday, “Twenty days before the election, there are leaks of an attempt to open another investigation into Netanyahu. Only Israel’s citizens will choose the prime minister – a right-wing government led by Netanyahu or a left-wing government led by Yair Lapid and Benny Gantz.”

Netanyahu received shares in SeaDrift, managed by his cousin Nathan Milikowsky, worth some 4 million shekels (about $1.1 million), while serving as opposition chairman. He sold the shares about 19 months after being elected prime minister, for at least 16 million shekels.

The questions grow larger once it is taken into account that SeaDrift was in financial crisis around the time Netanyahu sold his shares, and went from profitability to loss in the year 2009. The year that Netanyahu sold his shares, SeaDrift’s economic performance was worse by tens of percentage points compared to the year when he bought his shares.

As was disclosed a month ago, Netanyahu and Milikowsky had shares in the factory through November 2010. The factory later merged with Graphtec International, a publicly held company traded on the New York Stock Exchange, and a supplier of the German company Thyssenkrupp, which is at the center of the submarine acquisition affair, also known as Case 3000.

The factory was valued at $700 million in the deal.

Shortly before the merger, Netanyahu sold his shares to Milikowsky for some $4.3 million, which was about 16 million shekels at the time. The deal made Milikowsky a significant shareholder in Graphtec, a standing he held through the end of 2015, serving as a board member at the company from 2010-2015.

Netanyahu’s profit from the sale of shares apparently isn’t due to the pricing of SeaDrift in its merger with Graphtec; the market considered SeaDrift to be priced reasonably, or even attractively. Rather, it’s more likely that Netanyahu received unusually favorable terms when he bought the shares.

The factory published its financial data for 2005-2010 when it announced the Graphtec merger. They indicate that its performance actually worsened over the period that Netanyahu held the shares.

In 2007, when he bought his shares, the factory’s net profit was $60 million. That figure declined to $45 million as of 2008, and in 2009 sales dropped drastically and it had a net loss of $1 million.

The full figures for 2010 have not been made public, but based on figures published for the first half of the year, it probably returned to profitability, even if the profit was probably half of what it had been in 2007.

If this is the case, how does Netanyahu explain the financial miracle he pulled off while the factory was foundering? The only possible explanation is that he bought the shares for a significant discount off market price, probably totaling millions of dollars.

Sources close to Netanyahu insist that he wasn’t the only one offered the shares under such conditions, which is part of their argument that this wasn’t a personal benefit and it wasn’t an effort to influence Netanyahu.

Such a gift – a multi-million shekel discount on stock shares – to a sitting politician raises tough questions, even if Netanyahu were only one of a group of people who received similar gifts. But to understand the full picture, more information is needed, and this is something Netanyahu’s associates are refusing to disclose: Who else was offered this deal? Were they family members, or maybe strangers?

The details about the SeaDrift shares were publicized by News1 owner Yoav Yitzhak, whose coverage is clearly pro-Netanyahu. Yitzhak’s article, titled “Why he’s not a traitor,” argued against reopening the submarine case, but the details he exposed may actually make things worse for the prime minister.

Another detail Yitzhak exposed also touches on the submarine case. Yitzhak reported that the person who drafted the agreement for the 2010 share sale between Netanyahu and Milikowsky was attorney Isaac Molho. Molho was a partner at the firm of David Shimron, one of the main suspects in the submarine affair, and the lawyer for Thyssenkrupp’s Israeli representative, Michael Ganor.

Shimron’s involvement in the Graphtec-SeaDrift merger and the transaction between Netanyahu and Milikowsky is yet another factor connecting the steel shares story to the submarine case. Police determined that Shimron should stand trial for bribery in the submarine case for repeatedly invoking his relationship with Netanyahu to advance Thyssenkrupp’s interests with Defense Ministry and Economy Ministry officials.

Israel ultimately bought submarines worth $2 billion from Thyssenkrupp.