Who’s Who in the Capital Market’s Biggest Trial

The Dankner indictment will be one of the most interesting and important trials in the history of the Israeli economy, as white-collar titans line up to testify.

Ofer Vaknin

Nochi Dankner, the former controlling owner of Israel’s biggest conglomerate IDB, was indicted on Monday morning. Along with Itay Strum, one of the partners in ISP Financial Trading and reportedly a friend of Dankner’s, Dankner is facing charges of securities fraud, filing false details in a prospectus, failure to meet reporting regulations and using forbidden property.

On Tuesday, Judge Khaled Kabub of the Tel Aviv District Court’s Economic Division announced the trial will open on July 13, just two days before the court’s annual summer recess. Dankner and the other defendants will enter their pleas at the time. Sessions are expected to resume around September 1, after the recess.

The indictment tells the story of the behind-the-scenes events in February 2012 of the offering by IDB that was termed a “friends placement,” due to the large number of Dankner’s well-off friends who bought the company’s shares at the time. Allegedly, before the offering Dankner and several accomplices carried out a large volume of transactions in IDB’s stock, in order to lift the price and thus bring in more money from the offering.

Dankner allegedly spoke with several friends and associates who had expressed interest in buying IDB shares and asked them to buy the shares from Strum instead of during the offering. This allegedly was a way for Strum to offload the large volume of shares purchased in order to boost IDB’s price. Strum allegedly sold the shares for less than the average price he paid to purchase them.

1. The judge: A firm believer in the trend of stricter punishments

Kabub is scheduled to hear the case. He is the judge who usually handles the criminal cases in the Economic Division of the District Court.

Kabub is considered to be a tough judge, who raised the level of punishment for white-collar crimes a long time ago. In a number of decisions he has even stated openly that he wants to stiffen the punishments for financial crimes, and while initially these were just warnings and declarations, in September 2012 he sent a defendant to prison for 10 months for insider trading – the first time anyone has ever been imprisoned in Israel for that crime. The Supreme Court also backed him up in the appeal.

Since then Kabub has continued this trend. A year ago he sentenced former police commissioner Rafi Peled to six months in prison for fraud, securities violations and breach of trust, and since then he has sent a number of other white-collar criminals to jail.

2. The evidence: How to explain deals at a price higher than the market price

In the indictment, the prosecution tells the story of the events, agreements, conversations and requests between Dankner, Strum and Strum’s partner Adi Sheleg, who has turned state’s witness in the case.

This is not a simple case, for either side, says attorney Ronen Adini, who specializes in securities law. The indictment describes actions to support the share price at a high level for the stock offering. Such an act is illegal, if it happened, since it is artificially interfering in trading and illegal stock price manipulation, which creates a deceptive misrepresentation for investors who do not know what is happening, he said.

As a rule, in such cases the prosecution must prove criminal intent and actions meant to fraudulently influence the share price, and this needs more than circumstantial evidence. The question is what direct evidence the prosecution has up its sleeve, such as recordings of telephone calls or documents – and the key question is what direct evidence has the state’s witness provided? Adini says it is possible to convict based only on circumstantial evidence, but this evidence must be quite strong.

Another problem is linking Strum’s actions in buying and selling IDB shares to Dankner, such as whether he influenced the First International Bank of Israel (Beinleumi) to grant Strum and the ISP financial services company a larger credit line after using ISP’s entire credit line to purchase IDB shares.

“Strum allegedly carried out the actions, and if there is no evidence Dankner was involved – and that is a big if – then it is possible Dankner will be acquitted, even if Strum is convicted. It’s an evidence game, and we don’t know what evidence the prosecution has. Remember that in recent years there were also resounding acquittals,” said Adini.

3. The witnesses: The cream of the underwriting industry and the First International Bank

The indictment includes a long list of 66 witnesses for the prosecution, including 30 from the Israel Securities Authority; Sheleg; Eran Alkobi, the former CFO of ISP; and Dankner’s partners at the head of IDB at the time: CEO Haim Gavrieli, who is still in his post, deputy CEO and CFO Eyal Solganik, and Avi Fischer, Dankner’s partner who even invested personally in the offering.

The CEO of FIBI, Smadar Barber-Tzadik, is also on the witness list, as are other senior executives from the bank. Allegedly, after the bank refused to provide Strum with 15 million shekels in credit to buy IDB shares, Strum informed Dankner, who then used his influence on the bank’s management to provide Strum with the credit line – without providing any security except for the shares he bought.

Dankner did not deny he spoke to the bank and recommended providing the credit to Strum, but claims it was a legitimate and legal act in light of the friendship between the two.

Almost all the big underwriters in the market participated in the offering, so the witness list includes the heads of the major underwriters. Also on the list are a number of Dankner’s friends and business associates who participated in the offering, including businessmen Yossi Williger, Ilan Ben-Dov, Zvi Barenboim and Eitan Eldar.

4. The lawyers: The elite defenders of white-collar crime

The cream of the criminal lawyers who defend white-collar defendants will appear in court in the case. After being represented in the past by attorneys Eli Zohar and Roy Blecher of the Goldfarb Seligman law firm, Dankner switched his representation for the trial to Giora Aderet, whose law firm is one of the oldest and most respected in the area of white-collar crimes. Aderet has spent quite a lot of time in court recently with his client in the Holyland corruption case, the project’s developer Hillel Cherney.

Strum has hired the services of attorneys Navit Negev and Iris Niv-Sabag, who are also busy representing former Prime Minister Ehud Olmert in his appeal of his conviction in the Holyland case.

IDB, the company, which tried until the last minute to avoid prosecution, is also a defendant in the case. The fourth defendant in the case is Close Trading, the new name of ISP.