Taking Stock / Sixteen Years Later

The mills of justice do grind slowly. Sometimes it can take 16 years for them to finish the job.

In the last couple of weeks, we've been mulling the gay days of the Tel Aviv Stock Exchange in the early 1990s. No, we weren't waxing gauzily nostalgic: The local stock market was just as sleazy and corrupt as it is today. Investment methods were more primitive and the money involved was smaller, but the spirit was about the same. Nothing to pine for in all that.

We were just thinking about the gay days of 1993 and 1994 because of two extraordinary steps taken by the state prosecution last week: the request to extradite former judge Dan Cohen, who fled Israel for the embrace of Peru, and the indictment of a former prime minister, Ehud Olmert.

Two businessmen were prominently mentioned in the prosecution's documents: Yosef "Joe" Elmaliach, and Ezra Harel.

The indictment against Olmert relates that Joe Elmaliach gave Olmert $172,000 in two installments, in 1993 and 1998.

The request to extradite Dan Cohen says that Ezra Harel, since deceased, paid the judge a $2 million bribe.

The names Joe Elmaliach and Ezra Harel probably don't mean much to most of you. But for anybody who was involved in the stock market back in the early 1990s, the fact that they're cropping up again closes a circle.

Sixteen years late, the pieces of the puzzle are falling into place, and what we see is a picture of how befouled the Israeli business world was back then.

Joe Elmaliach and Ezra Harel were two of the more dubious business types on the stock market scene back then. Elmaliach headed the oil exploration company JOEL, while Harel took over a faltering industrial company called Rogosin.

Both found ways to speedily shovel public money into their own pockets, both made a fortune in no time and both promptly disappeared. Elmaliach moved to the United States and hasn't been heard of since. Harel had a heart attack on his yacht in the middle of the sea and died.

I described how Elmaliach and Harel milked the public at length in Haaretz in 1993 and 1994. But the police, the prosecution and the Israel Securities Authority did nothing. No investigation, no charges. Elmaliach remained free to live the life of Riley in the States, and Harel became a distinguished, sought-after businessman until his death in 2003.

Harel's story was disturbingly simple. Shortly after he took over Rogosin, it turned out the company was sitting on a gusher. Namely, 40 dunams of land next door to the Israel Electric Corporation's compound in Ashdod. Suddenly it turned out that the IEC desperately needed that land to expand. Harel demanded $72 million for the land, and ultimately "compromised" on the price of $62.5 million.

Guess who

The deal stank to high heaven. We showed back then that the utility didn't need the land, and that the price was excessive. But the directors on the IEC board, led by chairman Adi Amorai, were unmoved by our articles. The one working behind the scenes, making sure the deal would go through, was none other than the chairman of the IEC board's assets committee - Dan Cohen.

Now that the state is demanding his extradition, we learn that 16 years ago, Cohen received $2 million in cash from Ezra Harel.

Sixteen years later, that land in Ashdod stands fallow and unused. The IEC hadn't needed that land at all. Ezra Harel stole $62 million, which is nearly half a billion shekels in 2009 values, from the Israeli taxpayer. A bribe of $2 million got him half a billion in ill-gotten gains.

Harel, Cohen and their cronies at the IEC and the stock market thought the newspaper reports were hilarious. The press could sputter, but they were sitting pretty. People in the business scene reported that the two were running around town looking for similar deals where they could harness public money to pull their private chariots.

Elmaliach was a different type. He wasn't as arrogant, and mainly he kept to himself. His methods of milking the public were far more conservative: He raised hundreds of millions of shekels from investors, to search for oil. Yet tremendous sums leaked into his pockets and those of his associates through insider transactions. For example, Elmaliach appointed himself underwriter when JOEL set out to raise money, and took money from the company as an underwriting fee.

At some point Elmaliach got tired of the press reports about him, and decided to go for broke. He cobbled together a dubious transaction: JOEL sold a subsidiary for peanuts to businessman Kobi Maimon, who used public money to buy out Elmaliach at top-dollar prices.

This week we learned of another angle to Elmaliach's dealings in the early 1990s.

On page 34 of the indictment against Olmert, the state writes: "Around the date January 1, 1993, under circumstances not known to the prosecution, the defendant received $72,000 from Dr. Yosef (Joe) Elmaliach, citizen of the U.S. On February 19, 1998 Dr. Elmaliach transferred, for a reason not known to the prosecution, a sum of $100,000 to the private account of the defendant at Bank Hapoalim."

One has to wonder why the circumstances are "unknown" to the prosecution.

The antics of Joe Elmaliach were perfectly well-known in capital market circles back in the early 1990s. His close friendship with Ehud Olmert was also known, and the legitimacy that relationship conferred upon the businessman was also clear. What is also known is that in 1993, Olmert served as a director on JOEL's board, the same board of directors that approved many of the transactions through which Elmaliach milked the company dry.

Elmaliach, Harel and their abettors would have had a lot more difficulty milking the taxpayers and investors if the State of Israel had a law, a simple, clear law, requiring all public servants to file personal financial statements each year. From prime ministers to members of Knesset to directors at government companies to top bureaucrats, anybody with any control over public money should have to reveal his or her personal wealth once a year.

It is now up to the Israel Securities Authority, the state comptroller, the prosecution and the police to make sure we don't have to wait another 16 years to find out how the capital market superstars of 2009 are looting the public's pocket.