This week Nochi Dankner, until recently one of the top business tycoons in Israel, was convicted of stock manipulation. Monday's verdict prompted the chairman of the Israel Securities Authority, Shmuel Hauser, to boast: “The IDB stock manipulation case is part of our uncompromising war on corruption in the capital market.”
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Any sign of wrongdoing by any person of any rank, will be investigated and the ISA will press charges “when we believe there is evidence and a chance of conviction,” Hauser added.
One can understand his gratification following the across-the-board conviction of the biggest white-collar criminal case in a decade — at least in Israel.
Like many white-collar cases, Dankner’s was hard to prove. The evidence was circumstantial. Dankner was armed with a battery of lawyers and advisers, and until the last second, when he was found guilty of all charges, the assumption had been that he’d beat at least part of the rap.
No question about it: With this conviction, the gumshoes of the Israel Securities Authority made a quantum leap forward. From now on, people will think twice about their financial scheming.
There is also no question that the conviction of Nochi Dankner, formerly the No. 1 tycoon in Israel and the alpha dog of the club of moneyed media barons and politicians running the country, sends a clear message that nobody is above the law anymore.
Yet the very statement by the ISA chairman reveals what is missing in the verdict handed down by Judge Khaled Kabub. To recap, Hauser said, “We investigate and put on trial anyone at any level and any rank anywhere, when we believe there is evidence and a chance of conviction.”
And if there is no chance of conviction? Or if the public is being robbed blind, day after day, but the crime can’t be proved?
In trying to influence IDB Holding Corporation's share price ahead of the “friends’ offering,” as the media has dubbed it, Nochi Dankner made every possible mistake. He left behind a trail of evidence, documents and records that left the court no choice but to convict him. The Tel Aviv Stock Exchange computer system has a record of every transaction and software that can identify unusual activity in turnover or prices. In this case, the system raised a red flag.
And obviously the investigators would check phone and text messaging records. The stock manipulation scheme required Dankner to talk with dozens of people, referring them to the actual operator, Itay Strum, his associate and an investment banker. That was easy to uncover. Conversations with banks, like Dankner asking the First International Bank to extend Strum credit without guarantees or goodwill, are all taped. So when the investigation began, capital market observers all had the same initial reaction: It was impossible that a man like Dankner could have made the fraudulent deals so openly. He couldn’t have been that stupid.
In the stock manipulation scheme, Dankner lost his sense of caution and didn’t cover his tracks. But one has have to believe that there are many other cases in which Dankner and his ilk did manage to hide the evidence.
What about cases where they wielded unfair clout? What about the culture of force and threats that Dankner didn't shy away from? What about the managers, the directors, the watchdogs, the authorities, the politicians and journalists too, who were essentially held captive and did not dare expose the practices of the club which rules trillions of shekels of pensions and savings belonging to the people? All this happens, but proof is hard to come by. There isn’t enough chance of conviction.
Sweetheart press and friendly regulators
If only it were possible, Dankner’s conviction should be the start of profound soul-searching by the entire Israeli business community and the “tycoon” phenomenon of the last decade, which didn’t end with Dankner’s meltdown. We see it, for instance, in the business press. For years Dankner got good press from most business editors and reporters in Israel, though most were well aware of his modus operandi, which included buying a newspaper in order to wield pressure; an advertising boycott to punish a certain publication; and a habit of threatening to sue.
Dankner recruited newspapers and reporters to trumpet the wonders of his businesses and puff up share values while eliminating opponents, critics and even laws that could damage his affairs.
Or take the culture of philanthropy. Dankner donated tens of millions of shekels to war-stricken towns in northern Israel, money taken from the publicly traded companies in which the general public is the majority shareholder, and built up a cult of personality in return.
Or take the IDB group directors, accountants and auditors. Dankner carried out a series of accounting gambits and insider transactions which amounted to transferring money from public companies to his pocket, and those of his partners, yet not one manager or director raised a red flag and said, “no more; I won’t sign this.”
Or take the method used by Dankner and others to obtain kid-glove treatment from the authorities — by hiring them when they left the government and paying them astronomical sums. They weren't paid out of his pocket, and it sent a clear message to incumbent regulators.
Or take the back-scratching relationship he developed with the bank management, which allowed him and his companies to borrow hundreds of millions of shekels without appropriate collateral — leaving them with gigantic write-offs as the IDB ship began to rock.
It's true: All these are phenomena in business culture that have no direct connection with Dankner’s stock manipulation conviction, so none were discussed in Kabub’s courtroom. But his conviction in the case should jump-start a process of reflection, in which the Israeli public needs to ask itself what sort of business and ruling culture it wants. Does it want to live in a world where the public can freely be fleeced, as long as the fleecers don’t leave behind enough evidence to lead to conviction? Maybe they would prefer a culture in which businesspeople, managers, directors and watchdogs have very different norms indeed.