BSD, one of two holding companies that control food importer Willi-Food International, on Tuesday confirmed allegations that tens of millions of dollars in funds belonging to the two firms were used illegally as collateral for private loans.
In a statement to the London Stock Exchange, BSD said an examination it had conducted indicated that $30 million of its cash deposited in Austria’s Meinl Bank, as well as another $2.65 million in cash belonging to its parent company BGI, was “allegedly used as collateral for loans taken by off-shore companies unknown to BGI and BSD.”
BGI is controlled by Ukrainian oligarch Gregory Gurtovoy, who bought control of it last July from another Ukrainian, Alexander Granovsky. BSD didn’t indicate which foreign companies were involved or say there was any connection to Gurtovoy or Granovsky, but it said the deposits had been used as collateral since 2013.
“To the best of the knowledge of the company and BGI, neither company has ever agreed to use such deposits as collateral or as a guarantee in favor of any third party,” BSD said, adding that it had retained lawyers to “pursue all courses of action and rights” regarding the money.
At this stage it is not clear who at BGI and BSD authorized the cash to be deposited at Meinl, and the ISA declines to comment.
The report comes as investigators for the Israel Securities Authority investigate allegations that the pyramid of holding companies controlled Gurtovoy filed false financial reports cover up the fact that it was improperly shifting assets inside the group, a practice they suspect began when Granovsky was in control. Gurtovoy was arrested in February.
At the top of the pyramid is a closely held company called Israel 18, which in turn controls 71.5% of Tel Aviv Stock Exchange-traded BGI. BGI controls 45% of London-traded BSD, which holds 61.6% of Willi-Food Investments. That company owns 60% of Willi-Food International, which is traded in New York.
Last week, Joseph Williger – one of two brothers who sold Willi-Food two years ago to Granovsky, and who has a stake in BSD – launched a drive to gain control of BSD, citing among other things BSD’s failure to publish its 2015 financial results.
The ISA suspects that Gurtovoy and senior managers engaged in “sophisticated and global fraud” in two ways. Investigators believe Gurtovoy issued false financial reports amounting to tens of millions of dollars, including the deposits reported Tuesday by BSD. They also suspect that Gurtovoy and senior managers withdrew significant amounts of cash from Willi-Food, in particular $3 million of the company’s money that was invested in bonds issued by an Austrian company that has no connection to the food industry. The ISA suspects the bonds served as collateral for personal loans taken by Gurtovoy or someone else.
The board of BGI is largely made up of people associated with Gurtovoy or Granovsky, but two new outside directors were named last week to investigate what has been happening at the company.
In addition to Williger’s bid to gain control of BSD, Israeli businessman Naftali Shani is seeking to wrest control of BGI from Gurtovoy. Shani controls BGI shares that were pledged to him against an $8 million loan.
Last week a court ruled that Shani would suspend legal action for the next four and a half months in return for Gurtovoy’s paying him $2 million of the amount owed. If Gurtovoy fails by the deadline to repay the balance, the BGI shares will be handed over to Shani.