Nochi Dankner, the tycoon who once stood at the summit of Israel business through his control of the IDB group, used his first day of court testimony on Sunday to deny charges he manipulated IDB shares.
“I won’t describe the nightmare this indictment has been and what I’ve gone through in the two-and-a-half years since the start of the investigation. The facts and evidence of this case prove that I had no interest in front-running shares or any plan to influence the share prices,” Dankner said on the witness stand in a Tel Aviv court.
Dankner is charged with securities fraud, misleading investors in a prospectus and a breach of financial reporting obligations along with Itay Strum, the principal of the Swiss-Israeli brokerage firm ISP Financial Services.
The charges are all connected to a 2012 offering of shares and warrants valued at 321 million shekels ($80.4 million at current exchange rates) made by IDB Holding Corporation, the company that stood at the apex of the IDB group at the time. The state alleges that they worked to inflate the price of IDB sales prior to the offering, with Strum buying IDB stock on the market and Danker associates, in turn, buying the shares from Strum.
“I never planned with Itay Strum any plan to manipulate IDB shares. From my point of view there was no share manipulation at all, except for the activities of Adi Sheleg,” Dankner said, referring to another stock broker alleged to have been part of the scheme, who is serving as a state witness.
Dankner’s testimony was cool and collected, except for a brief period when Judge Khaled Kabub cross-examined him directly. The heat will be on again on Wednesday, when Dankner’s testimony resumes and the prosecution cross-examines him.
The alleged share manipulation came as IDB was faltering under a weight of debt and problems at its key businesses, which include Cellcom Israel and Supersol. Danker finally lost control of IDB at the start of 2014 as part of a debt bailout for the conglomerate.
Dankner’s testimony included a recounting of his years in control of IDB. He said that when he bought the conglomerate it was a unwieldy empire of 160 companies that he gradually pared down to a more manageable size.
Danker faulted himself for making some “not good” business deals, among them taking a position in the Swiss bank Credit Suisse, which left IDB with 700 million shekels in losses, and investing in a Las Vegas hotel project, which yielded 300 million shekels in further losses.
But he ascribed IDB’s real troubles to events starting four years ago. “The good period lasted eight years, until June 2011, but then something happened called a black swan – a disastrous, unexpected event. We met a flock of black swans,” Dankner told the court.
Dankner said that like many in business he didn’t see a second stage to the 2008-09 global financial crisis, nor was IDB able to cope with the reforms of the cellular market, which introduced stiff competition and lower rates, and hurt its Cellcom subsidiary badly.
“We held through Discount Investment Corporation half of Cellcom, which then traded at a value of more than $3.5 billion shekels. Cellcom’s value fell to $500 million,” he said, a decline that then sharply reduced the value of Discount and IDB at a time when they were highly leveraged and vulnerable.
Danker said the offering was not intended for the public, rather for people associated with Dankner and the IDB group whom he enlisted as investors. “Their interest was that they wanted to help me and aid me – not for altruistic reasons. But none of these people thought he would lose his money,” he said, but denied he ever actually called the securities sale “a friend’s offering.”
“We all knew that no public or no Mrs. Cohen from Hadera would be participating in this offering, not even a shekel. Nor would any institutional investors participate,” he said.
Recounting a phone call with Strum on February 22, the day before the IDB offering, Dankner said it was Strum who proposed buying IDB shares.
“Itay said he had decided to buy them because he believed in me, he had confidence in me and he understood that the offering was going well and would succeed,” Dankner said. Strum told him that he planned to take IDB shares as well. “My response was, ‘Itay, why do you need to do this?’ but Strum insisted on going ahead with the plan.”
Dankner’s lead attorney, Giora Aderet, asked why Strum might have told Dankner about this plan to buy the shares, to which Dankner responded he believed Strum was trying to impress him and that, in any case, IDB shares were trading at a historic low.
Dankner said he intervened with executives at First International Bank of Israel to support Strum’s applications for a loan, but he denied he sought a specific sum or offered to act as a guarantor.
As to why Dankner himself loaned Strum 8 million shekels when Strum was running short of credit to continue buying shares, Danknker said he hadn’t expected Strum to ask for a loan but agreed to do so because they were friends.
“At that time I wasn’t in the same situation as I am today. I had tens of millions of shekels in bank deposits and I said to Itay that I would be glad to give him the loan,” Dankner said.