Former IDB Head Nochi Dankner to Be Indicted for Securities Fraud

Indictment alleges the businessman manipulated his company's share price prior to February 2012 stock offering.

Ilan Assayag

Former IDB chairman Nochi Dankner will be handed an indictment detailing how he and accomplices allegedly manipulated IDB’s share price ahead of a stock offering, based on a draft of the indictment that has reached TheMarker.

Last week, the state prosecution informed Dankner that it had rejected all the claims he had presented in his defense in a pre-indictment hearing, and that it would be indicting him within days.

Dankner will be facing charges of securities fraud, filing false details in a prospectus, failure to meet reporting regulations and using forbidden property.

The draft indictment centers around a February 2012 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.

The draft indictment details how Dankner and Itay Strum, one of the partners in ISP Financial Trading and reportedly a friend of Dankner’s, allegedly worked together to carry out the transactions, and gives a play-by-play of the seven days when the transactions were carried out.

During these days, 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.

Strum’s attorney stated in response that Strum had serious arguments that would be aired in court.

The draft indictment also names 66 prosecution witnesses that reads like a who’s who of Israel’s financial scene. They include state witness Adi Sheleg, Strum’s partner in ISP; the heads of the underwriting companies that were involved in the share offering, including Clal Underwriting, Apax Underwriting and IBI Underwriting; and businessmen including Yossi Williger, Ilan Ben-Dov, Zvi Barenboim and Eitan Eldar.

It also includes executives at First International Bank of Israel, including the CEO, who allegedly were pressured by Dankner to give ISP credit in order to fund the share purchases.

The issuing of the indictment may be delayed due to the decision to name IDB Holdings as a defendant. Dankner lost control of the company to Eduardo Elsztain and Moti Ben Moshe, after the company ran into financial difficulties and could not pay creditors. The company’s court-appointed trustees, Hagai Ullman and Eyal Gabay, are arguing that the company should not be a party since no one at IDB aside from Dankner allegedly knew about the fraud. The main parties that would pay for the decision to include IDB on the defendants’ list are the company’s creditors, whom the court already ruled needed protection from Dankner, argue the trustees.

The draft indictment states that the grounds for the alleged fraud were created back in 2011, when concerns arose that IDB would not be able to pay back its bondholders. The company’s share price fell and returns on its bonds jumped, both signs of a lack of confidence from investors. This made it more difficult for the company to raise money, either from investors or from banks, notes the draft.

Thus, in order to pay off its debts, the company sought to raise money in February 2012 via a sale of shares and warrants to the public. Dankner and the rest of IDB’s management believed this sale had crucial implications for the company, states the draft indictment.

The offering began at 10:29 A.M. on February 17, 2012. According to the draft indictment, sometime before then Dankner and Strum allegedly agreed that the latter would carry out large-scale purchases of IDB shares on the stock exchange, in order to keep the share’s price from falling further or even to raise it, to boost the volume of trade and to create the impression that significant buyers were interested in the shares, states the indictment.

Some of the details in the draft indictment involve Strum’s alleged purchases on February 21. That day, Strum allegedly instructed his partner Sheleg to buy IDB shares on the stock exchange, via ISP’s accounts, in an effort to influence the share price, states the draft indictment. Sheleg bought 3.2 million shekels-worth ($932,000) of shares over the course of half an hour. Some of the alleged purchases were of shares held in a City Broker account belonging to Sheleg’s wife.

These transactions allegedly caused ISP to run out of credit. Strum called the First International Bank of Israel and asked to have the company’s credit line increased, but was turned down due to a lack of security. Strum then allegedly spoke to Dankner, who pushed the bank to give ISP the necessary credit. Beinleumi ultimately did so without receiving any security, aside from the shares to be purchased.

The draft indictment adds that Strum and Dankner allegedly were in constant contact that day, and decided together on how to act. Strum then allegedly gave Sheleg instructions. Strum later allegedly told Sheleg that if questioned, he should say the purchases were made because the company believed IDB was a good buy.

It states that the company’s share price fell only 1.9% that day, even though a significant number of shares were put up for sale, and attributes this limited drop to Strum and Dankner’s actions.

Dankner then asked investors who had expressed interest in participating in the share offering to buy from Strum instead. During the two days that followed, Strum sold a total of 18.9 million shekels in IDB shares to these investors, at a loss in off-the-bourse sales.

During this period, Strum’s transactions accounted for an average of 46% of the turnover in IDB’s shares, the draft indictment alleges.