Thousands of Yeshiva Students Lose Their Shirts in LifeWave's Crash

"I bought the share back when it was first issued, at the beginning of December 2006, when it cost NIS 9, and sold it last week for NIS 90 per share," related H., a religious man who has close ties to the Haredi (ultra-Orthodox) community. "In four months, NIS 10,000 became NIS 100,000 - a return of 900 percent."

Not everyone, however, has similar stories of high profits. Over the last few days, thousands of married yeshiva students who similarly decided to invest in LifeWave saw their savings disappear at an alarming rate, as the share plummeted 66 percent in just two days, closing last Thursday at NIS 29.38. It lost another 27 percent on Sunday, the next trading day, and closed at NIS 21.41 - a drop of 77 percent in three days of trading.

The share's high reached over NIS 90 after rising 900 percent in four months, and giving LifeWave a company value of over a billion shekels.

Why married yeshiva students in particular? Because this is the public that was largely responsible for the share's dizzying climb, and also suffered the most from its tumble, after the Israel Securities Authority (ISA) decided to put a stop to the circus.

LifeWave's meteoric rise and its 77 percent nosedive in the last three days of trading again raises a question that has been troubling the ISA, among others: Who is responsible for the massive turnover in the company's share? This question has no simple answer, but it is connected to the identities of LifeWave's owners. An examination of bourse records shows that Life Wave's controlling shareholder is R.L.V., a company owned by Reuven Shulman (46.9 percent) and Tager Afikim Investments (25.6 percent), which is owned outright by Yitzhak Kaufman. Shulman, Kaufman and other shareholders come from the ultra-Orthodox sector, where the story essentially begins.

"LifeWave is considered a 'Haredi' share, thanks to the identities of the controlling shareholders, who garnered the trust of the Haredi community," said an ultra-Orthodox source. "This is a close-knit community, and news of the share spread by word of mouth."

Ultra-Orthodox journalist Yossi Elituv claims that what happened with LifeWave is "normal" herd behavior, which is not unique to the Haredi community and was unrelated to the fact that the controlling shareholders are ultra-Orthodox.

"There was not even one notice [about LifeWave] in the Haredi press," said Elituv, who followed the share's performance and the reactions of the ultra-Orthodox community. "In Haredi society, it is accepted practice to appoint a committee of rabbis that advises the community to buy certain products (insurance funds, apartments in a specific project) via newspaper announcements, but in this case, there were no such notices."

Elituv added that most of the young ultra-Orthodox investors did not know who the controlling shareholders were.

"Thousands of people invested what little they had, in the hope of gaining enough to buy an apartment or finance their children's weddings," said one source in the Haredi community. "The main problem is that most of these people lack any experience with the capital market. This ultimately led to a tremendous surge in the share's price and its subsequent crash."

"Everyone dreams about getting rich," explained Elituv, "but this is strongest among poor people like those in the ultra-Orthodox sector. The problem is that when a yeshiva student spends money based on a neighbor's recommendation, he can get hurt twice: first, when the share crashes, and again when he has to repay the money he borrowed to invest. This is a very painful lesson that should be remembered: Anyone who has no money should not invest in the stock market."

The phenomenon of a share attracting great interest and shooting upward is not unique to the ultra-Orthodox community. The capital market has plenty of stories about shares (usually in companies "about to become the next big thing") or popular funds that grew based on rumors. "Word of mouth," however, spreads even faster in the Haredi community.

"The ultra-Orthodox speak with more people than the secular," explained one person. "They pray three times a day at the same or different synagogues and are close with their neighbors, such that rumors spread much faster than in secular society. The blame here lies with those people who were enticed to play with money they did not have and acted without any basic knowledge."

"This was a classic instance of people getting carried away," said Elituv. "Some young people went to their banks and asked to invest money without even knowing how to spell the company's name. Perhaps even worse, the banks frequented by the ultra-Orthodox picked up the rumor and advised people to buy the share. A classic bubble."

Elituv stressed that potential investors must differentiate between a company's performance and the share price's performance. "The company has a product that looks good. The problem is the rapid and disproportional rise in the value of the share. What we saw was people looking for a quick return, and they were the ones who sold out."