Former national police chief Rafi Peled was convicted on Wednesday of fraud and breach of corporate trust in connection with his management of a group of publicly traded companies that collapsed in 2002, leaving hundreds of millions of shekels in debt.
Peled, who was Israel Police commissioner in 1993-1994, was convicted in Tel Aviv District Court of additional offenses as a company officer and employee, and for failure to comply with reporting requirements of the securities laws.
Peled business partners Aryeh Givony and David Haby and financial adviser Tal Jaegerman were convicted of theft by a corporate officer, fraud and breach of trust, among other offenses.
Jaegerman was also found guilty of aggravated document forgery.
The Peled-Givony group burst onto the capital market scene with great promise. Initially it was suggested that a number of prominent figures were involved in the venture, but it quickly became clear that four people were involved: Peled, Givony and Haby, with the backing of “financial whiz” Jaegerman.
After the group’s collapse the Israel Securities Authority began an investigation, in part over the failure of several companies in the group to issue financial statements. The investigation culminated in the indictment in 2005 of Haby, Givony and Jaegerman, who were accused of stealing than NIS 45 million. Peled was accused of turning a blind eye to the alleged misconduct.
While the group’s start in 2001 was promising, soon afterward Givony and Haby allegedly began dipping into the funds of publicly traded companies in the group to pay off their private debts, at Jaegerman’s direction.
Judge Chaled Kabub’s verdict was more than 500 pages long. His ruling concluded a trial that lasted about seven years and generated more than 6,000 pages of court proceedings.
In his verdict Kabub described the defendants’ “blitz” to gain control of eight publicly traded companies within the course of a few months.
“The group went on its buying spree with the help of very substantial leveraging with bank credit,” Kabub recounted. “When the time came to repay the loans that they had taken out to take control of the public companies, they used the companies’ funds.”
Judge Kabub was particularly critical of Peled, saying he had behaved like a capital-market neophyte and did not see the warning signs over the group’s conduct.
But the former police commissioner was also the only defendant not found guilty of theft. “Indeed, Peled did not steal funds from the public companies and did not get his hands on the money, but he failed colossally in meeting his duties as chairman of the board, as controlling shareholder and as part of the controlling group,” the judge ruled.
Peled and Jaegerman first met at the Israel Electric Corporation, where Peled became CEO after leaving the police force. Jaegerman was Peled’s financial adviser at the utility company.
In court Jaegerman argued that because he was an external adviser to the Peled-Givony group, not an officer, he could not be convicted of the offenses with which he was charged.
The judge rejected this argument, saying, “The quantity and quality of the evidence in support of the prosecution is overwhelming and does not leave a shadow of a doubt that Jaegerman was an officer of the group.”
Jaegerman’s control over the owners of the group was also clear, Kabub ruled, “to the extent that in practice he appropriated their discretion and spoke on their behalf.”
It was Jaegerman, the judge said, who steered the group’s business plans. He also borrowed money from the shareholders, including Peled, and Jaegerman’s financial survival was therefore important to them, Kabub said.
Peled’s lawyer, Giora Adereth, said he would study the ruling before deciding whether to appeal.
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