The co-chairman of G. Willi-Food International, Gregory Gurtovoy, was arrested Wednesday by Israeli authorities. He is suspected of taking money out of his BGI holding company and its publicly traded food importing company, in violation of the law.
Gurtovoy, the controlling shareholder of Willi-Food, appeared at Tel Aviv Magistrate’s Court and was ordered held in custody until today while Israel Securities Authority investigators continue to examine the company’s affairs.
The arrest follows a lengthy secret investigation by the ISA, which said it suspects him of financial reporting violations, false reporting, aggravated fraud and money laundering.
The alleged violations, which involved BGI executives as well, involve at least tens of millions of dollars. Willi-Food’s offices were raided by ISA investigators on Wednesday, but the company told the Tel Aviv Stock Exchange that it wasn’t being accused of any violations in the probe.
Willi-Food shares ended the day down 1.4% at 9.73 shekels ($2.49). Its shares are also listed on the Nasdaq stock market, where trading was suspend yesterday afternoon at $3.75 after falling more than 5%.
Investigators had been quietly investigating Gurtovoy some time after he bought BGI from fellow Ukrainian Alexander Granovsky in July. However, there are suspicions that the violations being probed may have begun when Granovsky controlled BGI, which is structured as a pyramid holding group and holds a lot of cash. Willi-Food alone has 300 million shekels on its books.
Investigators decided to make the probe public and arrest him after Gurtovoy moved some $3 million out of Willi-Food accounts in January to invest in bonds issued by a European company with no connection to Willi-Food’s core food business.
The ISA didn’t say who issued the bonds, but TheMarker has learned that it was a small company whose sole asset is the Grand Hotel Europa. The small Prague hotel, built in 1889, has about 90 rooms but apparently isn’t in operation and its reservations system was shut down.
Investigators suspect that the hotel was used as a conduit for taking money out of Willi-Food and that the bonds were serving as collateral for a loan that Gurtovoy or someone else took. The money was taken from Willi-Food’s account without proper authorizations, the ISA alleges.
However, the biggest money involved in the affair, allege ISA investigators, is some $55 million in banks in Azerbaijan and Austria by BGI, its Emblaze subsidiary, now known as BSD Crown, which is traded in London.
The money was recorded as being available as free cash, but the ISA suspects that it cannot be withdrawn because it was secretly put up as collateral against loans that Gurtovoy and/or Granovsky took. If so, it would violate rules on the use of money by a publicly traded company.
Before investing the in Grand Europa bonds, Gurtovoy had sought to get Willi-Food’s board’s approval to invest 20 million euros ($22.2 million) in a lingerie company based in Austria. But enough of the directors objected that the investment was never made.
Gurtovoy was little known in Israel before he bought control of BGI in July 2015, although he became an Israeli citizen in 1995. He does not have a criminal record. At a press conference at the time he took control of the group, Gurtovoy acknowledging knowing Granovsky for 12 years and doing business with him but dismissed rumors that the Granovsky was continuing to control the business or that the transaction was fictitious.
“There are enough rumors circulating already, so there’s no point in adding fuel to the fire,” he said. “I’m not Granovsky’s shadow. People can say what they want. I have all the necessary documents. I’m the one who runs the companies.”
Granovsky sold BGI at a time when he was in financial crisis, with sizable debts to Israelis and a Russian bank. But no sale contract has ever been released, nor did the two disclose how much Gurtovoy paid for BGI. Two Granovsky associates remain on the BGI board to this day.
While it was under Granovsky’s control, BGI acquired Willi-Food, which imports foods under its own label as well as products from companies such as Del Monte, for 265 million shekels in 2014. Nevertheless, he allowed Zwi and Joseph Williger, the two brothers who had sold him the business, to stay on as co-presidents. Gurtovoy dismissed them last month with no explanation.
According to Bloomberg data, Gurtovoy controls GHP Group Ukraine, a private investment bank. From 1998 to 2004 he held a number of management positions at the Ukrainian airline Aeroswit, including managing director.
His attorney, Ruth Litvak, yesterday expressed confidence in her client’s innocence. “We are confident after the evidence has been examined it will be clear that Mr. Gurtovoy acted properly,” she said.
As to the bonds issued by the Prague hotel he instructed Willi-Food to buy, Litvak said they were “an investment recognized by the board in accordance with investment policy and was for a small amount relative to the investment capital. The plan is to renovate the hotel and reopen it.”
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