Psagot Strikes NIS 150m Plea Deal in Price Manipulation Affair

David Edry, former VP at subsidiary Psagot Securities, and Shai Ben-David, then a trading-room manager at Psagot, allegedly made investments with company's proprietary account designed to manipulate security prices to maximize the company's profits.

State Prosecutor Moshe Lador is closing the investigation against Psagot Investment House group companies for allegedly manipulating security prices, in exchange for a NIS 150 million fine - the largest ever in this kind of case.

The case is being closed in keeping with terms reached between the prosecution and Apax Partners, which plans to buy the controlling stake in Psagot from New York-based York Capital Management, the Justice Ministry said yesterday. Criminal investigations against managers and employees at Psagot companies will continue.

Mosher Lador, Roy Vermus (Daniel Bar-On, Ofer Vaknin)
Daniel Bar-On, Ofer Vaknin

David Edry, former VP at subsidiary Psagot Securities, and Shai Ben-David, then a trading-room manager at Psagot, allegedly made investments with the company's proprietary account that were designed to manipulate security prices to maximize the company's profits, and thus their bonuses, between 2007 and 2009.

The story broke at the beginning of the year after Israel Securities Authority investigators searched the company's offices and arrested the pair, both of whom were fired in 2009.

Other people also came under suspicion for allegedly aiding the fraud.

The deal comes after a month of talks between Apax representatives, lawyers and ISA Chairman Zohar Goshen.

London-based Apax had asked that the state close the case against Psagot in exchange for a large fine and the dismissal of employees suspected of wrongdoing. There would also be new internal supervisor mechanisms to prevent similar cases in the future.

From the start, Apax had said that once it took control of the company, it would improve oversight in the name of the public interest, to head off a potential court case.

Lador and Goshen decided that Apax's offer served the public interest. Psagot is the country's largest investment house, with NIS 140 billion in managed funds.

At 11 P.M. Thursday night, Apax representatives informed York's representative in Israel that Apax had decided to purchase Psagot, following a year of negotiations between the two international companies.

The companies initially announced in December 2009 that York would sell its 76% holding in Psagot for NIS 3.1 billion. But then came the news that Psagot was under investigation over suspicions that officials manipulated stock prices using the investment bank's proprietary investment account, and negotiations over the price began again.

The deal closed Friday afternoon, for NIS 2 billion, which reflects a market cap of NIS 2.76 billion.

While York is giving Apax a discount off the original price, it's still a good deal - York bought its stake in Psagot four years ago for NIS 650 million, of which half came from Israeli banks. Given the sale price, York can say it made 30% annually off its investment in Psagot - not counting the NIS 150 million fine.

Psagot's 800 workers will also profit from the sale - they'll be getting a bonus.

Apax has a letter from the state prosecutor saying the investigation will be closed in exchange for the terms Apax offered.

While the sale of Israel's largest investment house by one international firm to another doesn't mean much for the person on the street, the replacement of Psagot's top management does potentially have repercussions. CEO Roy Vermus and Chairman Arik Steinberg are expected to depart in the coming months.

Vermus and Steinberg will profit from the company's sale along with all the other employees, by the way. Steinberg will be getting more than NIS 10 million in cash, while Vermus will be getting more than NIS 20 million.

Vermus was not a party to the agreement with the prosecution, and he disagrees with it, his lawyer said yesterday.