Fallen IDB Tycoon Dankner Faces Indictment for Share Manipulation

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A day after he lost control of Israel’s largest conglomerate, the IDB group, Nochi Dankner learned yesterday he will likely be indicted for manipulating stock prices.

The state attorney’s office in Tel Aviv said it would file an indictment against Dankner after holding a hearing to learn his version of the events that occurred early in 2012.

Dankner denied any wrongdoing. “We absolutely deny any allegations made by the prosecution … and we believe that following the hearing it will be decided that there are no grounds for prosecution,” his attorney Eli Zohar said.

The prosecutors’ announcement came less than a day after Dankner announced he was giving up his lengthy battle to retain any semblence of a role in IDB, a holding group whose interests include many of Israel’s biggest and best-known companies, after Tel Aviv District Court Judge Eitan Orenstein awarded control of the group to Moti Ben-Moshe and Eduardo Elsztain.

Early on Monday, Orenstein rescinded an order he had given delaying the transfer of IDB Holding Corporation, the company that sits at the apex of the group, pending an appeal by Dankner and his partner, the Ukrainian businessman Alexander Granovksy. Orenstein’s latest decision puts IDB into the hands of Ben-Moshe and Elsztain.

Dankner was named by prosecutors along with Itay Strum, the principal of the Swiss-Israeli brokerage firm ISP Financial Services, as playing roles in the price manipulation. However, another suspect in the crime, stockbroker Adi Sheleg, was not mentioned by the prosecutors. Sheleg has apparently agreed to serve as a state’s witness.

Dankner will face charges including securities fraud, misleading investors in a prospectus and a breach of financial reporting obligations. Strum and IDB Holding Corporation will face the same charges as Dankner, though Strum will also face charges of perjury committed during an investigation.

In November 2012, Dankner was questioned by the Israel Securities Authority for suspected securities fraud linked to a 321-million-shekel ($91.7 million) offering of shares and warrants by IDB Holding in February that year. In July 2013, the securities authority recommended that Dankner be indicted.

Dankner is suspected of conspiring with Sheleg and Strum to pump up IDB Holding’s stock price ahead of the public offering in an effort to increase the capital that would be raised. Dankner and his associates allegedly transferred funds to Strum and Sheleg, who bought the shares. As part of these efforts, Strum and Sheleg are suspected of pumping tens of millions of shekels into IDB Holding’s shares.

The Securities Authority became suspicious that someone was manipulating IDB Holding’s share price due to a massive spike in trading volume in the days before the public offering.

The indictment came as the new regime moved on IDB. On Sunday night, Dankner cleaned out his desk at the IDB headquarters at the top of Tel Aviv’s Azrieli Towers. Meanwhile, the board of IDB Development Corporation, a holding company one level down from IDB Holding, together with the court-appointed observer Hagai Ullman and financial expert Eyal Gabbai, approved the appointment of Igal Salhov as chief financial officer. Salhov replaces a Dankner appointment, Eyal Solganik. Other Dankner-era executives are expected to leave in the near future.

Salhov’s appointment was made without the approval of Ben-Moshe and Elsztain.

Many question marks hang over the future of IDB (see Eytan Avriel on page 9). Neither Ben-Moshe, an Israeli who made his fortune in Germany, and Elsztain, an Argentinian property magnate, are well known in Israeli business circles. Apart from IDB’s financial problems they face as tougher regulatory environment after the Knesset last month passed the Business Concentration Law.

Nevertheless, investors on the Tel Aviv Stock Exchange have bid up IDB Holding shares by 48% over the past two to a close of 3 shekels yesterday. Still, the company has a market capitalization of just 145.5 million shekels. IDB Holding bonds rose as much as 5.1% yesterday.

Salhov will receive a monthly salary of 85,000 shekels, benefits and perks such as a car costing no more than 200,000 shekels. His overall salary costs are expected to reach 1.42 million shekels annually. Salhov e served as CFO of Oil Refineries Limited and its subsidiary Carmel Olefins. IDB Development said it was impressed by Salhov’s experience in helping companies overcome liquidity problems.

Yesterday, Ullman and Gabbai were appointed temporary directors at IDB Holding and IDB Development. But it’s not yet clear if IDB Holding’s bondholders will ask the court to let them have the 70 million shekels deposited by Dankner and associates with the court over the past year and a half.

Nochi Dankner in court. Credit: Tomer Appelbaum

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