Three Capital Market Insiders Arrested on Suspicion of Fraud

Executives accused of front running, short-selling assets.

Three top capital market executives were arrested in Israel two days ago on suspicion of alleged securities fraud at the expense of pension holders and investors, shocking capital market insiders due to their senior positions.

The suspects include Moshe Goldman, who used to be the investment manager at Israel’s largest pension fund, Gadish, owned by the Psagot investment house, and is now the manager of fund members’ investments at the Menora Mivtachim investment house; Hadar Oshrat, head of the trade room at Deutsche Bank Israel; and Shaul Maor, one of the owners of the Maor Lusky investment house.

They were accused of committing a fraud known as front running from 2008 to 2013. In cases of front running, investment managers use their knowledge of large pending deals − which are likely to raise an asset’s price − in order to personally buy that asset in advance, thus turning a profit once the institutional investor makes its purchase and boosts the asset’s price. According to the suspicions, Goldman took advantage of his position at Psagot and the knowledge of pending deals that it granted him in order to enrich himself and his partners.

They also allegedly short-sold assets when they knew that an investment fund was about to sell off a large number of shares. A short sell is essentially a bet that an asset’s price will fall. When a large investor sells off a significant number of a given asset, that asset’s price is likely to decrease due to the increased supply in the market.

The profits from these trades were allegedly kept in bank accounts owned by family members and friends in Israel and abroad.

The transactions that the suspects allegedly took advantage of were carried out by investment houses Psagot and Discount Investments.

The Israel Securities Authority said the suspects allegedly took in 11 million shekels ($3.15 million) in illicit money through these activities.

The three suspects are currently under house arrest and paid millions of shekels in bail. Their passports have been confiscated, and they are blocked from leaving the country for 180 days. They are required to receive ISA permission in order to enter their workplaces. Their spouses were also questioned by the ISA.

Oshrat denied the charges via his attorney; responses were not available from the other suspects. The wives also denied wrongdoing via their attorneys.

Players in Israel’s capital market yesterday said they were shocked by the news. “These are people in very senior positions,” said one senior manager at a large investment house. “The suspicions harm all the workers in the sector. This is a sad day.”

The manager added, “We complain about excess regulation, and then an affair like this one comes and everything blows up in our faces. It takes us back several years. Good for the Israel Securities Authority for catching this one. It’s a complicated case. I’m guessing that the class-action suits filed on behalf of Psagot members will start now.”

Bloomberg