The Chairman's Financial and Family Ties Run Deep

Abraham Hirchson is one of the few Knesset members with both blood ties and financial ones to the Tel Aviv Stock Exchange. These diverse connections, which also helped him raise funds for the Likud primaries, pass through his son, Ofer Hirchson, who controls Hirchson Barak, a small group of publicly traded companies.

These connections, however, are only one source of friction between the new chair of the Knesset Finance Committee and the capital markets. Hirchson, who once headed the Leumit health maintenance organization (HMO), now chairs the National Workers' Union, which is part of the group that controls the Berger Holdings brokerage company, together with chairman Amit Berger.

In May 2001 the union purchased 35 percent of Berger Holdings via two of its subsidiaries, Hod Hamidbar Hotel and Yuvalim Pension Funds, which together have a subsidiary called Hod Yuvalim. Berger is a co-signatory with Hod Yuvalim on an agreement for joint control of Berger Holdings and is one of Hirchson's campaign contributors. The Hod Hamidbar hotel at the Dead Sea was owned by the Leumit HMO, headed by Hirchson. Due to extreme cash flow difficulties, Leumit sold the hotel during the 1990s to Yuvalim, the pension fund used by the union, also headed by Hirchson.

A critical report published by the Finance Ministry in 1997 noted that Leumit sold the hotel to the pension fund without a tender and in violation of the recovery plan signed between the HMO and the treasury. "The affinity between the two bodies reinforces suspicions regarding the deal," wrote the deputy supervisor of budgets at the treasury.

The pension fund recently invited 120 members of the Likud Central Committee to spend a weekend at the hotel. When asked about the incident by Globes, Hirchson responded that he had invited only a few of the central committee members who had attended and that he was not one of the event's organizers.

Miki Tsoler, president of the union's pension fund, said that those who were invited to the weekend were people who had participated in the renovations of the hotel and officials of the union's institutions, more than a few of whom were central committee members.

Leumit, which is considered a small HMO, has 700,000 members. Its severe financial crisis, marked by an accumulated deficit of close to NIS 1 billion, raises fears of its imminent collapse. Sources at Leumit say that 60 percent of the deficit dates back to before 1995, when Hirchson was appointed chairman. The sources further claim that some of the deficit stems from financial difficulties common to all the HMOs due to the limited basket of services covered by the National Health Law, and some of the deficit is due to the financing expenses incurred by the deficit itself.

Former finance minister Silvan Shalom and Prime Minister Ariel Sharon recently intervened in Leumit, which is identified with the Likud, and appointed an external auditor. Past media reports show that at an emergency meeting at the treasury in June 2002, financial assistance from the government was made conditional on the replacement of Leumit's management.

According to the media coverage, the Health Ministry also demanded that Hirchson also be replaced. Hirchson denies this, but in December 2002 he suddenly announced his resignation and the appointment of Tsoler in his stead. Hirchson linked his resignation to the HMO's recovery plan, which was ultimately not implemented in its entirety because the treasury also demanded the resignation of Leumit's director general. The recovery plan is due to be discussed again by the Knesset Finance Committee in the coming weeks.

One of the other reasons for Leumit's deficit is its quest for new members, primarily in the Haredi ultra-Orthodox sector. Among other things, Leumit provided benefits and services to agents and agencies who recruited new members, in violation of the National Health Insurance Law. The state comptroller's report in June 2002 noted that Leumit had transferred NIS 589,000 to the Shas-affiliated Netzach Margalit Association for recruiting new members.

Another example of the connections between Leumit and politics concerns the franchise to operate a medical clinic in the Hatikva neighborhood of Tel Aviv, which was given to Yossi Riani without the approval of the health and finance ministers. In June 2002 Haaretz reported that Riani is a member of the Likud Central Committee. The guidelines for approving the provision of medical services to people insured by the Health Ministry, including the requirement that the two ministers approve the franchise, were formulated following the conclusions drawn from the Leumit-Netzach Margalit case.

The Zvi Barak link

The Barak part of the Hirchson Barak group comes from co-controlling partner attorney Zvi Barak, who owns 18 percent of the shares. Barak's links with the Hirchsons began in the 1990s when Barak helped Abraham in an effort to reclaim property that had belonged to Holocaust survivors. Their warm relationship led to Hirchson's appointment of Barak as Leumit's external legal adviser.

Leumit also appointed Barak to chair one of its subsidiaries, Leumit Le'atid, a company that managed the supplementary insurance of its members until mid-2002. An internal audit report in early 2002 found that Leumit Le'atid was not only handling a limited health sphere but was also serving as a channel for transferring funds to various bodies including non-profit organizations, seemingly in contravention of the law. The report also criticized Barak's monthly salary.

Leumit Le'atid was closed in 2002 at the request of the Health Ministry, after the revelation of Leumit's tremendous deficit and the contents of the internal audit.

Dr. Uri Frishman, who subsequently lost his job as general manager of Leumit Le'atid, two weeks ago filed a NIS 1.5-million suit against Leumit and three of its managers - Hirchson, Barak and former Leumit general manager Dr. Shmuel Rosenman. Frishman claims that he refused to approve actions and follow orders that were against the law but that would benefit the company.

The Leiblich Moser law firm, which advises Leumit (and Haaretz), has submitted its response to the court and contends that Frishman has no grounds for his suit and behaved in a manner that constitutes breach of faith and breach of trust. It was also Leiblich Moser that advised Hirchson that there was no conflict of interest in Barak's work with Leumit and his business partnership with Hirchson.

The pensioners pay again

A few weeks ago Berger Holdings issued bonds on the TASE. Even though most small companies have difficulty selling bonds to institutional investors, several of the union's pension funds, including Yuvalim, snapped up NIS 5 million of the NIS 25-million issue.

Meanwhile, Hod Yuvalim is planning to offer Berger Holdings a consulting and management services package for NIS 500,000. Thus the pension fund members are investing in Berger Holdings, in which the union holds a controlling share, while Berger pays another of the union's subsidiaries via management fees.

Hirchson's reply

MK Abraham Hirchson said in response to questions from Haaretz:

l "I do not fulfill any role at the pension fund or the Hod Yuvalim partnership, and at no time was I a party to those decisions and agreements. The pensions function independently; each has its own board of directors and chairman. Decisions are based purely on the boards' business considerations."

l "The health maintenance organization was already running a deficit when I was elected as its chairman in 1995, when the State Health Insurance Law took effect... From the time I took up the post and throughout my term in office, I demanded that the government of Israel take care of the deficit as it took care of Clalit's. The treasury never once demanded replacing the HMO's chairman."

l "The Hod Hamidmar Hotel held a function on completion of the renovations. The hotel's management invited numerous guests, among them individuals involved in the hotel's management, renovation and marketing... All the guests over that weekend paid for the hotel's accommodation and hospitality."

l "I have nothing at all to do with the matters under discussion in Mr. Frishman's claim... There is no basis to the charge that Frishman was instructed to take illegal action."

l "The bill I submitted was intended to prevent discrimination against people who are worthy and capable of serving as directors of government companies, because of the fact that they are party central committee members."

l "I am not involved in my son's businesses at all... Furthermore, I am not involved at all in recruiting or selecting employees for the HMO."

l "Attorney Zvi Barak had ties with the HMO prior to his business dealings with my son, Ofer... Although the legal opinion determined no conflict of interests, I took action to end attorney Barak's ties with the HMO."

l "All contributions to my primaries in the Likud were made legally. I have no ties with those contributors, aside from a superficial acquaintance."