Dankner's Trial Will Be the Tip but What About the Iceberg?

There are suspicions of serious wrongdoing concerning the stock offering at the center of the investigation which the judge will never hear about.

Rotem Shtarkman
Rotem Shtarkman
Nochi Dankner, second from right, at a recent wedding.
Nochi Dankner, second from right, at a recent wedding.Credit: Dudu Bechar
Rotem Shtarkman
Rotem Shtarkman

It’s already clear that this week’s indictment of Nochi Dankner, the former controlling shareholder of the IDB group, will provide a dramatic and sad finale to his painful involvement in the Israeli capital market.

It’s been painful for him too. After a decade at the helm of the largest and strongest corporate consortium in the country, which includes such prominent businesses as Super-Sol, the largest supermarket chain in Israel, and Cellcom, the cellular service provider, he is now on the outside. He’s no longer a tycoon whom everyone is trying to woo, but rather a bankrupt businessman facing securities fraud charges.

Dankner's run at IDB has also been a painful period for members of the public. Over the course of a decade, the public saw its money handed over to a group of cynical, greedy businessmen, who lived in opulence at the public’s expense and lost sight of their responsibilities. These businessmen, and not just those from IDB, had their praises sung by the media and the public relations industry, and were assisted by lax regulation and timid politicians. On the surface, at least, it may have been aboveboard, but it reeks nonetheless.

And, actually, not everything was legal. Stock manipulation, of which Dankner stands accused, is not legal. It’s a serious criminal offense and we’ll be hearing a lot more about it in the coming months, as the legal process grinds on. The proceedings in the Tel Aviv District Court promise to be the most widely covered and fascinating in the history of the country's capital markets. The indictment, however, barely engages with the breadth of the distorted practices in which Dankner and his associates are suspected of engaging.

First of all, there are suspicions of serious wrongdoing concerning the stock offering at the center of the investigation which the judge will never hear about. It’s not for nothing that it’s been called a stock offering for friends of Dankner. Many people in the capital market entrusted their money to Dankner - more than 200 million shekels ($58 million) of it - even though they seem to have known that they had no chance of earning a profit from it and the warning bells were already audible.

A large portion of this money was ultimately owned by individual small investors, but it was controlled by big business executives such as Meir Shamir of Mivtach Shamir Holdings, Ofer Nimrodi of Israel Land Development, the Delek Group’s Yitzhak Tshuva and Zwi Williger of Willi Foods. They invested the money of members of the public, even though these small-fry investors were not Dankner’s friends. The tough questions that apparently will not be raised in court also relate to people like Yair Hamburger of the Harel insurance and financial group and Shlomo Eliahu of Migdal, as well as nearly all of the underwriters in the capital market, who invested millions of shekels, albeit of their own money. Still, these are people who control billions of shekels of the public’s funds and they live off the management fees that the public pays them.

On the day of the public offering, TheMarker featured a column explaining why there was no logic in investing in it, but these people dug into their pockets and did so anyway. Ironically, the day on which Dankner got himself in trouble over allegedly manipulating his company’s stock was the same day that the public committee looking into the problem of corporate pyramids such as Dankner’s submitted its recommendations.

So how is it that Dankner managed to raise hundreds of millions while up the road in Jerusalem they were talking about how dangerous his business practices were? What did his investors owe him and what did they expect to get in return? Why did the entire capital market support him and thumb their noses at the government? Are there those at publicly traded companies besides Dankner who should be under suspicion of wrongdoing? Does this case represent a failure of the system and what needs to be changed to head off wrongdoing in the future? And what about Dankner’s relationship with the banks? How is it that Bank Hapoalim under Zion Kenan gave Dankner hundreds of millions personally, even though it was obvious that it wouldn’t be getting it back? And why haven’t the banks done a thing up to now to get their money back from him? There are answers to these questions, but they won’t be considered in court. Evidence won’t be presented regarding them. They won’t lead to punishment or corrective measures.

The Israel Securities Authority needed to produce a lot more than an indictment, as courageous as it might be. And that’s without mentioning scandalous transactions involving conflicts of interest over the years, ties with banks and regulators and prostitution of the entire financial system. And still, if Dankner’s trial doesn’t end in a cowardly plea bargain, it will be interesting to hear dozens of senior capital market figures twist and turn on the witness stand. It will also be interesting to see if they continue to come to Dankner’s defense, as they have for years, or whether they disclose the methods used in taking advantage of the public. Will a distorted code of loyalty prevail or will the complex web of connections through which the public’s money was played with be laid bare?

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