Taking Stock / Six Years Hard Time

1.Unless you were playing the Tel Aviv Stock Exchange in the early 1990s, you won't get it.

You won't understand Eilon Tzabari's special status on the market during those years. Or recall the miasma of corruption seeping from most of the institutes handling other people's money. Or the feeling that everything goes, wink wink nudge nudge, just don't get caught. Or the disappointment that of the dozens of top people stealing other people's money, only a handful were indicted.

We were there. We remember the gangs, the gambits, the slogans, the issues and mainly the ambience of sleaze.

So we are satisfied with the severity of the sentence handed down Monday against Tzabari - the man who had managed investments by the biggest player on the Tel Aviv Stock Exchange at the time, Bank Hapoalim's mutual funds; the man who thought the fund members' money might as well be his; the man who throughout his legal ordeal refused to acknowledge the enormity of his crimes; and the man who will now spend six years behind bars.

2. Now: Is the capital market of 2003 any cleaner than that of 1993? Yes it is. Today's managers of other people's money are a lot more careful than in the past. The boundaries between may and may not have been clearly demarcated. So, does that mean there is no more corruption in the capital market? There is, and how. All too many managers are dabbling in derivatives through cover accounts. When the capital markets recover, we're likely to see a resurgence of managers taking direct and indirect bribes. But not as baldly or extensively as beforehand; those six years Tzabari will be spending in jail, not to mention the NIS 3.5 million fine, won't be forgotten that fast.

3. Will the decrease in corruption on the TASE solve our biggest problems? Not at all. Much of the money being plundered from investors is being done so perfectly legally, in the form of huge salaries, sweetheart deals between shareholders and companies, transfers of control with premiums going onto the substantial shareholders, and so on.

The Israel Securities Authority can only do so much to handle this legal gouging. The ones who should engage in battle are the institutional investors, which manage other people's money. They have the power, they have the money, and therefore, also the most effective weapon.

But experience teaches that they are afraid to tackle the corporations and substantial shareholders. Israel's marketplace is very small, and is controlled mostly by the banks and a few major corporations. The institutionals don't want to make waves, even if their quiescence is at the expense of their customers.

4. Judge Oded Mudrik sentenced Tzabari to six years and his accomplice, Yoram Nagler, to only one year. That is because Tzabari was found guilty of using customer money (belonging to clients of Bank Hapoalim's mutual funds) for personal gain. Nagler, on the other hand, was acquitted of breach of trust and he did not use the customers' money.

That is the distinction and the heart of the matter. Most of the TASE gang members were convicted of manipulating shares (meaning illegally influencing share prices), but that transgression was not considered serious. The real problem was abusing the status of asset manager to use other people's money, other people's property, for personal gain.

5. Is Israel's capital market in 2003 more or less corrupt than America's? We think the answer is clear as day: Our situation is better. We have seen the American market in action in the last couple of years, from analysts to investment bankers to corporate executives to accountants.

But the relative absence of corruption here isn't an issue of innate righteousness; it's just that our capital market is a miserable little backwater.

6. Which brings us to perhaps the most important point. The Israel Securities Authority exposed Tzabari and his mob, and the judge sent them to jail. Well and good.

But the most egregious economic crimes in Israel aren't perpetrated via the stock exchange. They lurk in the crack between the private and public sectors - in tenders, land rezoning, construction committees, jobs for the boys, franchises, exemptions from permits and tax, sweetheart legislation and deals, nepotism and cronyism feasting off the taxpayer - in short, in all those underground deals between the political and bureaucratic echelons and the business sector, from the minnows to the sharks.

Israel's courts have not learned how to deal with this cancer. Even when public servants are charged, they usually wind up with whimpering acquittals or slaps on the wrist.

Judges and prosecutors frown on stock market villains, white-collar crimes involving securities that are "sexy" or simply "serious." But the real looting of the public, by people growing filthy rich from handling other people's money, is being carried by much more primitive means than the methods of Tzabari and his friends.