Helpless to Stop the Leaks

Dozens of companies sold shares and debt to Israel's investors during April-June. Not a single one was held up by the Israel Securities Authority - even though details from dozens of prospectuses appeared in news reports. Leaks were springing up wildly, and that is not supposed to happen.

Just a year before, the ISA had held up several offerings for the very same reason - leaks.

Why the change in attitude? Simple: there wasn't one. It's just that the ISA was inundated by the huge wave of offerings.

If the ISA was being consistent, it would have had to hold up dozens of offerings. Even the bulldog leading the watchdog, Moshe Tery, realized that halting the supply to the ravening bull market was not a good idea.

The leaks exploding left, right a center, as is evident by the reports in the press, prove that the ISA's war on leaking has been worse than pointless. We don't need to test that theory: just observe the facts.

The source of the leaks

Under the law, a company publishes its final prospectus only after the institutional phase of its offering. By the time the institutional phase is over, this prospectus has actually reached dozens, even hundreds of people: company workers, lawyers, money people, accountants, assessors, secretaries, print-shop workers, and more and more.

Moreover, the ISA's war on leaks has actually worsened the situation, in that it's become a tool for rivals (or scorned underwriters, or minority shareholders afraid of dilution) who want to stop a company's flotation.

One has to wonder what the ISA hopes to achieve with its war on leaks. Its ultimate goal is for all investors to receive equal access to information. In practice, in Israel the institutional investors receive a draft of the prospectus during the institutional phase of the offeringSo, first the prospectus (in draft form, which is usually the same as the final form) reaches the big boys with the power - but the public remains in the dark.

Note that most of the news reports noted that the companies had not been the source of the leak.  The sources were evidently among the hordes of people who saw the draft or final prospectus before its publication.

Israel should adopt the American model, under which the prospectus is published at the start of the process, and the shareholders are subjected to media silence.

The model neutralizes leakers and assures equality of access to information. It would also preclude the ISA from wasting its resources, which would be better directed at other targets - abuse of insider information, creative asset repricing, stock manipulations by provident and mutual funds, overly optimistic forecasts by listed companies, freebies for investment advisers, you name it.