Pact With Prosecutor Clears Sale of Psagot

Brokerage CEO expected to sue over deal.

Eti Aflalo
Noam Ba
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Eti Aflalo
Noam Ba

The sale of a majority stake in the Psagot investment firm by Apax Partners was finally concluded yesterday with the transfer of NIS 2.1 billion to York Capital and its partners, the Plainfield Asset Management and Seneca Capital. Apax has acquired nearly 77% of Psagot after the state prosecutor closed an investigation against Israel's largest investment house over suspected fraudulent trading.

The deal over the sale, which had originally been signed last December, was held up by an investigation by the Israel Securities Authority. U.S.-Israeli investment fund Markstone Capital owns the other 23% of Psagot, which manages assets of NIS 140 billion.

Psagot's current CEO, Roy Vermus, will have to leave the firm by the end of the year along with Shai Yaron, CEO of Psagot Securities in the coming weeks, according to an arrangement worked out between Apax and the prosecutor's office. Vermus is expected, however, to petition the courts over the arrangement. An announcement by the state prosecutor's office that it was closing the investigation against Psagot in exchange for a NIS 150 million Israeli fine enabled Apax to finally seal the sale. Criminal investigations against managers at Psagot will continue, the prosecutor's office said in a statement.

Psagot's directors resigned yesterday and in the evening the board of directors of Apax met at Psagot's offices to elect a new board for the investment firm. As an initial order of business, Zahavit Cohen, CEO of Apax Israel, was elected acting chairman of the Psagot board. Observers assume Cohen will choose to appoint a new CEO for Psagot from outside the investment firm's current ranks.

Top Psagot people suspected of knowing

The ISA had said in February it suspected former Psagot executives David Edry and Shai Ben-David made proprietary investments designed to manipulate the value of various securities, in an attempt to boost the investment house's profits and their bonuses. The offenses allegedly occurred between 2007 and 2009, when Edry was vice president at Psagot subsidiary Psagot Securities, and Ben-David served as trading room manager at Psagot. Other people, including Vermus, came under suspicion for allegedly aiding the fraud or knowing about it.

The prosecutor's office said Apax agreed to dismiss any employees involved in wrongdoing and implement internal controls to prevent similar cases in the future. The prosecutor's office reached the conclusion that closing the investigation against Psagot was in the public's interest, and that bringing Psagot "to trial could cause heavy damage to a large number of investors," the statement said.

NIS 600 million in financing for Apax's stake in Psagot was provided by a consortium of Israeli banks - Bank Leumi, Bank Hapoalim, Israel Discount Bank, Mizrahi-Tefahot and Union Bank - TheMarker has learned.

When the deal for the sale of the Psagot stake to Apax was signed at the end of last year, it received NIS 1.4 billion in financing commitments from Bank Leumi and Bank Hapoalim, to be split equally upon the closing of the deal. Even at that early stage, however, the two institutions began looking for partners.

The ISA investigation of Psagot led to a lowering of the value at which the firm was sold, and a change in the structure of financing for the deal.

The banks also committed NIS 1.3 billion in credit if Apax decides to buy out Markstone's minority share in Psagot. The price Apax paid for its stake reflects a market value of NIS 2.76 billion for the investment firm, an 8% discount on the original purchase price.