Understanding the Nochi Dankner Scandal

The manipulation of IDB shares wasn't intended to boost their price, according to the securities authority, but to prop up the existing price and improve the offering's outcome.

What does "fraudulent influence over share prices" mean?

Jurists' terminology for attempting to illegally sway share prices in stock market trading, this type of stock manipulation is referred to in market argot as "share ramping." The aim is usually to turn a quick profit by buying the stock and then selling it on the market at a higher price.

The perpetrator tries to create a "positive sentiment" around the stock to entice others to buy after he has already done so. He might accomplish this through the help of friends who purchase the stock in a synchronized way and convince their own friends to buy in, too. The excess demand generated propels the stock price upward, providing the opportunity to sell at a profit.

How can the Israel Securities Authority detect attempts at share ramping?

The authority checks for unusual activity by subjecting all stock market transactions to review. One thing it looks for is evidence that most or all activity in a given stock was conducted through a single account, or several accounts showing signs of working together. Another red flag is when a stock that usually has light trading starts showing high volume for no apparent reason. Extreme, inexplicable price movements also raise suspicion.

What was the unusual activity detected by the securities authority in the trading of IDB Holding stock?

What stood out was an unusual shift in trading volumes. Turnover in the first half of February, when the shares traded just upwards of NIS 40, tended to be very low, averaging NIS 600,000. Then, just days before the share offering, turnover escalated dramatically, reaching NIS 32 million on February 21 with the price closing at NIS 38.50. The next day turnover reached NIS 45 million as the price settled at NIS 37.90.

On February 23 turnover was NIS 40 million as the share price continued its decline. On that day IDB Holdings announced it had completed its NIS 321 million share offering. The share price for the offering was set at NIS 40 and each bundle of six shares was accompanied by warrants.

What happened to IDB's stock after February 23?

The stock's trading turnover remained high for several days and then started dropping. Meanwhile, the share price began to plunge, losing 30% of its value by March 13. This is considered quite rare on the heels of an offering. And while it is common to see heavier trading volumes around the time a company raises capital, the extraordinary degree to which volume picked up - along with the identity of the main players involved with the stock and the steep drop in price afterwards - was unusual.

What did the authority discover about trading in IDB shares before the offering?

Securities authority documents reveal that two securities dealers, Adi Sheleg and Itay Strum, engaged in irregular trading of IDB stock for three days, from February 21 to February 23, by issuing a flood of buy orders from their accounts in the scope of "tens of millions of shekels."

Their activity was coordinated and "aimed at improving the offering's chances of success," according to the authority, which claims the dealers bought the shares in the market at high prices and sold them to Dankner cronies afterwards for less. Rather than profiting, they themselves were actually saddled with losses.

Share ramping is supposed to raise stock prices. If the dealers lost money, how can this be called ramping?

The key issue here is that the abnormal activity occurred close to the time of the share offering for which the share price is determined according to its trading value. If IDB's share price had fallen in the days leading up to the offering, the amount of money raised by the company would have been substantially less - perhaps even leading to a cancelation of the offering.

IDB's share price did indeed drop, however slightly, right before the offering. Due to the irregular activity by the two dealers, however, the stock didn't crash: Its freefall only began after the offering was successfully completed.

The manipulation of IDB shares wasn't intended to boost their price, according to the securities authority, but to prop up the existing price and improve the offering's outcome. It is important to note that IDB would have been left empty of cash by today had the February offering not succeeded.

What is Nochi Dankner's connection to the two dealers and what are the allegations against him?

The securities authority claims Dankner prompted associates to buy IDB shares from Sheleg and Strum, and also channeled them additional funds to maintain their buying spree. The investigation revealed that, shortly before the offering, Dankner transferred NIS 8 million to Strum. This may have been meant to cover the losses he suffered from ramping the stock. The transfer of payment to Strum, along with other findings, connects Dankner to the affair as far as the securities authority is concerned, indicating that he instigated it, knew about it and financed it. The evidence appears strong but the authority will still need to make it stand up in court.

It goes without saying that this would mean a serious violation of securities laws by Dankner if such a connection is proven. Dankner responded Tuesday to the allegations by saying he's convinced that all his actions in the matter were legal and beyond reproach.