The Israel Perry case: Justice must prevail

Perry’s biggest crime was devising a brilliant plan, taking enormous risks and making money. He certainly didn’t deserve a 10-year prison sentence.

By JILL SINIGAGLIA
Yisrael Perry 370 (photo credit: courtesy)
Yisrael Perry 370
(photo credit: courtesy)
In 2008, attorney Israel Perry was convicted of theft, fraud, subornation in connection with an investigation and obstructing justice, receiving 12 years in prison.
The sentence shocked many legal, insurance and pension experts, and anyone who knows the gentleman.
A gross injustice occurred, and that is why I am compelled to speak out. I don’t believe any article written over the years relayed enough information to allow one to understand this case, and I hope I can provide a clearer explanation.
In a nutshell, the prosecution centered around the German pension program. In 1973, the German government offered participation in its social security program to any Israeli citizen no matter what his religion.
This pension had nothing to do with the Holocaust.
Unfortunately, whenever anyone has read anything about Perry in the press over the years, headlines screamed out about theft from Holocaust survivors. This is emphatically untrue.
Around the time the offer was going to expire in 1983, Perry devised a business venture to assist those people interested, and advertising in Israeli newspapers garnered 30,000 requests. Eventually, 13,000 qualified due to age requirements.
The Israeli government blocked participation, deeming the pension not to be a worthwhile investment.
The biggest requirement was “catching up” with those German citizens who started contributing to the program in the 1950s. The cash injection each Israeli participant needed was the equivalent of approximately 30,000-40,000 euros in today’s prices.
Many people could not afford this, and the government forbade any transfer of funds outside the country, making participation impossible.
As it turns out, this was the best pension plan anyone could have signed up for, far exceeding in value all pensions available in Israel today, with this additional money from Germany making participating pensioners’ daily lives much more comfortable.
Perry, thinking outside the box, set up companies abroad to lend applicants the money needed to join the program. Finding credit accommodations was very difficult.
Eventually, a German bank agreed to lend money to Perry against personal guarantees. The bank stipulated the requirement of life insurance on each loan, guaranteeing if a client died before paying off the loan in full, the survivor pension would be free and clear of debt. The lending company was the beneficiary and owner of the policies.
This was noted in the contracts with detailed explanations of fees, interest, service charges, a 20-year schedule of loan re-payments, and insurance premium charges.
Over time, Perry made arrangements with several Israeli insurance companies, but their service proved unsatisfactory. The German bank was unhappy with the situation, preferring that Perry contract with a non-Israeli insurer.
Perry decided to set up his own insurance company, becoming a self-insurer. His insurance company, called Britannia, was reinsured by a first-class company, Cologne Re of Germany. A legal opinion was accepted not to inform the pensioners, as nothing had changed regarding their commitments, except a reduction in premium charges.
Clients had no exposure due to the relevant clause in their contracts. All the risk was on the lending company.
The Israeli prosecution charged Perry with two thefts of insurance premiums from clients. This seems impossible, since you can’t steal from yourself.
Perry didn’t divulge his ownership in the lending company, as Israeli law did not allow foreign ownership of companies. He was worried the German bank might withdraw the credit line if it was revealed he circumvented Israeli rules. In 1988, this law was repealed, and he was not prosecuted for this infraction, but it was alleged that he lied about the company ownership in order to defraud his clients.
Some employees of Perry’s Israeli company the Organization for the Implementation of Social Security Act Israel-Germany (OSSA), seeing the venture to be lucrative, decided to open their own company, appropriating 5,000 names from OSSA, and all the documentation from the OSSA offices. OSSA sued them in civil court, winning the case. They appealed the judgment to the Supreme Court and lost. The vendetta against Perry began with much negative press, and demanding investigations for theft and fraud.
If this is what they truly believed, why did they try to start their own business, taking all the contracts that OSSA used for their clients, and using the same business model? These business adversaries approached OSSA clients, convincing a few to stop paying on their commitments.
The German government set up parameters for repayment of the loans, allowing 66.6 percent of the value of the pensions to be used as payment to the lending company, BGF. Another company, BGA had standing bank orders from the participants that charged interest, service charges and life insurance premiums monthly, leaving approximately 28 percent for the pensioners’ use.
After all, there was a large loan to be repaid by the pensioners. This pension was free of any contributions from their own pockets. Some clients, convinced they were cheated, canceled standing bank orders, while still receiving the pensions from Germany. OSSA sued in civil court, winning every case, but one, which was reversed on appeal to the Supreme Court.
All the contracts were examined by the Standard Contracts Court, and an insurance actuary for the Finance Ministry. Both contracts and premium charges were deemed fair, comparable to industry standards.
Charges were actually less than market norms regarding loan interest and life insurance premiums.
How could the criminal court reach completely opposite conclusions than the civil courts? The investigation against Perry went on for more than 10 years.
Coming from the US, I find it very disturbing that an accused can be interrogated without defense counsel present, investigations go on endlessly, and defendants are not judged by a jury of their peers.
In Israel, most criminal cases are heard by one judge, not always with the expertise needed to understand economic and financial issues, as in this particular case. In 2001, Perry negotiated a settlement with the Israel Tax Authority regarding a parallel investigation that went on for a few years. He paid NIS 150 million in regards to businesses owned abroad.
One condition of the settlement was agreement to stand trial on criminal charges, because the government didn’t want it to appear that Perry had bought his innocence.
Perry’s attorneys believed there wasn’t anything criminal in his actions, having won all civil suits, and convinced him to accept the terms.
Many experts testified on behalf of Perry, including Prof. Amir Barnea, a world-renowned economist, and Doron Shorer, a former insurance regulator for the State of Israel. In contrast, the prosecution didn’t present even one expert witness.
The most damaging testimony was given by “state’s witness” Martin Hecke.
Perry met Hecke at the German bank, and he helped with the architecture of the credit line. After leaving the bank, Hecke was employed by Perry. Several years later, during a routine audit of Perry’s companies, it was discovered that Hecke had stolen $7.5m. Hecke was in a panic about the money he had embezzled, and more than willing to testify against Perry, receiving a guarantee from prosecutors of not being charged himself.
Hecke testified about a meeting with Perry in Switzerland, where Perry gave the impression he would negotiate a “parting handshake” of considerable value if Hecke returned the money, and didn’t testify against him.
Actually, Hecke tried several times, through business acquaintances of Perry, to offer favorable testimony on Perry’s behalf if he would forgive the $7.5m. embezzlement. These people testified in court, but to no avail. Part of Perry’s sentence was five years for attempting to bribe a witness. It seems the opposite was true.
In my opinion, Hecke was not a credible witness, and had much to gain by lying. Unfortunately, the court deemed Hecke truthful and not a thief.
During the court proceedings, Perry’s attorneys served Hecke with a civil suit. This move was interpreted by the court as an effort to intimidate Hecke not to testify against the defendant, and this was evident in the judgment.
Eventually, Perry won a suit against Hecke in Israeli civil court for embezzlement of NIS 35m.
Unfortunately, Perry had already been convicted in district court, and Hecke got away with his lies. Perry won a civil action against Hecke in Germany, and recently that case was upheld on Hecke’s appeal. He was ordered to pay 5m. euros, but so far, he hasn’t paid anything in either case.
During their investigation, Perry’s appeals team went over many hours of taped conversations between Hecke and investigators in the district court case. Unfortunately, there were audio problems with the tapes, and conversations “off camera” were not audible, but with new technology, the tapes were cleaned up, posing more questions than answers about Hecke’s testimony. A portion of one tape appeared on Israeli television a while ago. To this day, inquiries by Perry’s attorneys have not been satisfied.
Several appeals have been presented to the Supreme Court, only producing a two-year reduction of the original sentence. I believe it’s every person’s right to do whatever is necessary to prove his innocence.
Unfortunately, most people simply don’t have the money needed, and the rules for appeal to the Supreme Court are very complex.
Perry made irrelevant mistakes along the way. One fact is certain, 9,000 people who received a loan have lived a better life because of all he accomplished on their behalf. He was hounded by the authorities for years. Many damaging stories about Perry appeared in the media, most of them not factual. He paid an enormous income tax settlement.
Perry’s biggest crime was devising a brilliant plan, taking enormous risks and making money. He certainly didn’t deserve a 10-year prison sentence.
I have known Israel Perry for many years, and I am extremely proud to call him my friend. I’m asking every person whose life was improved by the German pensions to stand up and be counted. Please make your voices heard. In my opinion, justice has not been served, and a man’s reputation has been ruined. There was no real crime, but there definitely was real punishment.