A Rabbinical Judge Probed Graft Allegations Against ultra-Orthodox Trust. Then Israel's Chief Rabbi Fired Him

The rabbinical court judge investigating irregularities and corruption in Haredi nonprofit groups has been removed by Israel's chief rabbi, David Lau, who heads the rabbinical courts

Israel's Chief Ashkenazi Rabbi David Lau in 2015.
Lior Mizrahi

Israel's Chief Ashkenazi Rabbi David Lau, who is responsible for the rabbinical courts, has reassigned a rabbinical court judge who was seeking to investigate irregularities and corruption in ultra-Orthodox nonprofit groups. 

According to people familiar with the issue, Lau yielded to pressure from parties with an interest in stopping the investigation launched by the judge, "dayan" in Hebrew, Rabbi Shlomo Shtasman. Rabbi Shimon Yaakobi, the rabbinical courts’ legal adviser, told Lau in a letter that Shtasman was even threatened by "people involved in the cases he was hearing."

Until last Thursday, Shtasman was director of the Jerusalem rabbinical court (beit din) for property trusts (hekdeshot) in Jerusalem. A hekdesh is a legal entity, usually dating back to the Ottoman era, that holds property designated for a specific purpose, like educational institutions or synagogues. At Lau’s request, Shtasman was reassigned to head the parallel court in Tel Aviv. At the heart of the story is a complex case of alleged corruption at one of the most well-known and wealthiest hekdeshot in Jerusalem, Etz Chaim. 

According to Yaakobi's letter, which was obtained by Haaretz, Shtasman warned for several months that, "People of influence connected to the hekdeshot are taking steps that will lead the president of the Supreme Rabbinical Court [Lau] to remove him from his position" because his judicial actions were "disturbing those people." That wasn’t the only warning in the letter. Yaakobi made it clear to Lau that, "Removing Rabbi Shtasman from his post at this time could undermine the public’s confidence."

Lau's office denied the claims and said the decision to move Shtasman from Jerusalem was connected to a comprehensive reform taking place in the rabbinical court system. Moreover, it said no decision had been made yet on whether Shtasman would continue to work on these specific cases. Lau's office did note that Shtasman had threatened Lau’s bureau chief and that there would be a complaint filed about this to the religious affairs minister.

Etz Chaim neighborhood in Jerusalem, December 23, 2018.
OREN-BEN-HAKOON

The report at the heart of the storm deals with the way the Etz Chaim hekdesh, both the organization and its properties, has been managed over the past few years. The report, completed two months ago, is also the focus of a police investigation into the hekdesh. According to the report, hekdesh executives – including lawyers, businessmen and well-known figures in the ultra-Orthodox world – conducted a series of real estate transactions involving some of the most valuable properties in Jerusalem that resulted in the hekdesh losing tens of millions of dollars in properties without getting anything in return.

The Etz Chaim hekdesh is a pillar of ultra-Orthodox history and society in Jerusalem. The hekdesh was founded in 1842 by Rabbi Shmuel Salant in Jerusalem’s Old City. In the ensuing decades, it established yeshivas, built neighborhoods, opened businesses and bought properties. According to the charter of the hekdesh, revenue from the properties was meant to keep the educational institutions running in perpetuity. To this day there are some 1,000 students in the Etz Chaim institutions, many of who are affiliated with extremist Haredi sects that refuse to accept any state support. 

Until a few years ago, the nonprofit association managing the hekdesh properties controlled an incredible number of valuable Jerusalem properties – buildings, plots, stores and apartments. But in a series of strange moves and agreements, the nonprofit’s executives, advisers and other people stripped it of its large holdings in return for almost nothing. The profits went to activists and lawyers in Jerusalem. 

After a number of reports and suspicions of irregularities, state authorities – including the Public Hekdesh Registrar, the Religious Hekdesh Registrar, the Nonprofit Association Registrar and the rabbinical courts – made an unusual move last year and decided to appoint attorney Ronen Matry to manage all the entities affiliated with Etz Chaim. Matry, who also serves as the nonprofit’s receiver, spent several months questioning people and examining documents, and his findings are presented in a 111-page report (with hundreds of appendices) that has shaken up the hekdesh system, the rabbinical courts and the registrars. The report tells a tale of tainted transactions by interested parties who essentially stripped the hekdesh of all its important real estate assets.

One of the hekdesh’s most valuable assets was a plot with two old buildings on Jaffa Street near the Mahane Yehuda market. In 2007, the nonprofit sold the plot for $15 million. The buyer was Eran Hochberg (through his father), a Haredi businessman. It turns out that Hochberg, who holds no official position at the nonprofit, was a key factor in all of the transactions in question, whether as an adviser to the nonprofit, a consultant to the entity that purchased the property or as a purchaser himself. In most cases, he wore more than one hat at the same time. 

Jaffa Street  in Jerusalem, December 23, 2018.
OREN-BEN-HAKOON

In the case of the plot on Jaffa Street, he pushed for its sale for years as an adviser to the nonprofit and eventually purchased the plot himself, supposedly for $15 million. Although the nonprofit was presented with a valuation report regarding the value of the plot, that report was drawn up according to Hochberg’s own instructions. As he candidly admitted when questioned by Matry: “Valuation is an exact science. They do exactly what you ask them to.” According to Matry’s report, Hochberg eventually sold the plot for almost double what he paid, $27 million. Last week, the Jerusalem District Planning Commission approved construction of a 30-story building with 124 apartments on the plot, as well as hotel and commercial space.

However, according to Matry’s report, there is no proof that Hochberg ever paid the $15 million for the plot. Instead, he transferred money to buy a different property for the hekdesh, a large but unprofitable nursing home in the Romema neighborhood. This property was purchased by the nonprofit for $16 million, but in reality, due to some unexplained currency fluctuations, the nonprofit actually paid $18.5 million for this property. And then, instead of getting the nursing home itself, it got shares of two foreign companies registered in Panama that hold the nursing home. These shares, for some reason, are registered in the personal names of the hekdesh trustees. One of them, attorney Yosef Shahor, left that hekdesh in 2011, yet the shares are still registered in his name. 

Despite his efforts, Matry was not able to find any written proof of money changing hands in any of these transactions. “Hochberg essentially determined the price, ordered the valuation, and is apparently the only person who knows how much money was actually transferred to those who hold the Panamanian shares,” he wrote in his report.

The bottom line is that through this circular transaction, a public trust exchanged a plot in downtown Jerusalem with enormous real estate potential for shares in two foreign companies that control a money-losing nursing home. This occurred even though the objectives of the hekdesh have nothing to do with running a nursing home.

Two years later, the nonprofit made another deal, purchasing a large compound for its educational institutions (to replace the buildings on Jaffa Road) from the Jewish Agency. The site, known as the Lemel compound, was acquired for 46 million shekels (around $11.7 million at the time). The seller was a Haredi lawyer named Aharon Fogel, who worked in partnership with Hochberg. 

Mahane Yehuda Market, July 2018.
Olivier Fitoussi

According to Matry’s report, the nonprofit paid 16 million shekels more than an appraiser’s previous assessment of the property. The nonprofit later sold the property for more than what it paid, but after expenses it emerged that the organization lost 3.2 million shekels from the circular deal. Those who profited were various advisers, like developer Nahum Rosenberger, attorney Fogel and the aforementioned Shahor, who got 270,000 shekels in fees, although by law, a member of a nonprofit is not supposed to get paid by it. The report also raises suspicions that Hochberg, through a third party, got hundreds of thousands of shekels for consulting and brokerage services for these same transactions.

Hochberg was also involved in the sale of another historic property held by the nonprofit, a small historic neighborhood known as Etz Chaim, located right near the Chords Bridge at Jerusalem’s western entrance. The properties were sold in two transactions, in 2015 and 2017, for 27 million shekels, even though a previous assessment in 2012 had put the value of the land at 45 million shekels and a valuation conducted by Matry himself estimated the value of the neighborhood at 51 million to 54 million shekels. 

The neighborhood is in the heart of the area slated to become the new business district of Jerusalem, near the new Navon train station, and its value is expected to rise significantly in the coming years. 

Another key player in the sale of the neighborhood was attorney Asher Axelrod, head of the Jerusalem Bar Association and a member of the committee for the appointment of dayanim, who represented both sides: the nonprofit that was selling the land and the company that bought it. When a new director appointed to the nonprofit tried to ask Axelrod who essentially was representing the nonprofit in these transactions, he replied with an aggressive e-mail: "The question is not clear to me, and to a certain extent it is very embarrassing. Drive carefully."

To Matry it’s clear who was harmed by the fact that Hochberg and Axelrod were acting as advisers to both sides. "The result is that the nonprofit’s representative, attorney Axelrod, and its adviser, Eran Hochberg … led the nonprofit to carry out a transaction that wasn’t necessary at a price considerably less than market value. Thus the Meitarim companies [the buyers] were able to control all the rights to the Etz Chaim neighborhood, while causing real harm to the rights of the nonprofit and its institutions." As in the case of the property on Jaffa Road, the hekdesh saw little of the money from the transactions. Only 2.2 million shekels of the 27 million shekels made it to the accounts of the nonprofit, while 8 million shekels went to pay betterment tax and other fees and some 17 million shekels were never paid at all. 

Chords Bridge at Jerusalem.
Emil Salman

All the transactions, noted Matry, were characterized by the same pattern – negligent, or worse, handling of the sales process by the heads of the hekdesh and the reliance on outside advisers who had personal interests which conflicted with those of the hekdesh. 

Matry writes that the transactions and money transfers should be investigated further and recommends a series of steps that could save at least some of the assets of the hekdesh. He also recommends prosecuting those involved in the transactions. His report was submitted to the State Prosecutor’s Office and to the police and an investigation has been launched, but sources involved in the matter say the police do not understand the depth of corruption and do not seem to be making an effort to advance the investigation.

Eran Hochberg chose not to respond. Asher Axelrod said, "[Matry’s] report is full of half-truths that will be clarified in the proper courts. There is absolutely no problem with an attorney representing both sides; not only is it permitted but it’s proper and in this case it was even crucial for Etz Chaim’s benefit." He said the property valuation for the Etz Chaim neighborhood was correct given the various planning problems involved with the asset and that "the transaction saved the nonprofit from financial collapse."

Rabbi Lau’s office said, "The president of the rabbinical courts [Lau] last week completed the assignments and transfer of all the dayanim in the country’s rabbinical court system. The president of the rabbinical court also decided to make order in all the special judicial panels, including the hekdesh courts, such that they would include dayanim from the local rabbinical court. This will end the phenomenon of moving dayanim around and lending them from one beit din to another. Since Rabbi Shtasman is a member of the Tel Aviv Rabbinical Court, he will serve on the special panel for hekdeshim in Tel Aviv. 

"The opinion of the legal adviser [Yaakobi] spoke of two specific cases in which he made the complexity of the cases clear, and said he wanted to explain the issues. That’s why the rabbinical courts president asked that the rabbinical courts’ legal team be convened and that deliberations in these cases be halted until a final decision is made.

"With regard to any threats received, the rabbinical courts president was not aware of them and immediately upon learning of them the president instructed to make sure the information was made known to the Israel Police as required."