Ex-Psagot execs under investigation

Illegal trades suspected.

By BY SHARON WROBEL
February 3, 2010 04:53
2 minute read.
Illustrative photo

stocks 311. (photo credit: AP)

 
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Israel Securities Authority investigators raided the offices of Psagot Investment House Monday night on suspicion that in the past the country’s largest investment firm executed trades to artificially inflate or depress the value of stock and bond prices for its own profit.

“There is no indication that the investigation by the ISA, which is in its early stages, damaged any public assets or pension savings managed by Psagot,” the Finance Ministry said Tuesday.

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Psagot CEO Roy Vermus said the investigation involves activities that relate only to the investment house’s own accounts and do not affect its clients’ assets in provident and mutual funds or other portfolios. Psagot would fully cooperate with the ISA and keep transparent communication with its clients and investors, he said.

The two suspects are David Edry, who served as vice president of brokerage at Psagot Securities from 2007 to 2009, and Shay Ben-David, who managed Psagot’s trading room during the same period.

Psagot’s proprietary portfolio is the company’s vehicle for investing for its own profit rather than for clients.

The ISA asked a Tel Aviv court to put Edry and Ben-David under house arrest. It said they are suspected of having committed fraud in their securities trading in a systematic manner that stretched over a long period of time.

Edry and Ben-David are suspected of making billions of shekels of profit for Psagot’s proprietary investment portfolio as well as for their own gain. They allegedly manipulated the prices of government and corporate bonds by buying securities via the investment house’s own funds before receiving pending buy orders from clients, which would move the equity’s price upward. Using this method, a broker can purchase securities for its own account and, after placing the clients’ orders, can sell them at a higher price, thereby making a profit.



Edry and Ben-David stopped working at Psagot at the end of last year, following a decision by the investment house to terminate its proprietary investment trading activities to focus solely on asset management for clients. In a letter to employees, Vermus said terminating the two executives’ contracts had not been related to the charges in the ISA investigation.

In December, private-equity firm Apax Partners Israel reached an agreement to purchase a controlling stake in Psagot from shareholders led by York Capital Management, at a company value of NIS 3.1 billion. The deal is one of the largest acquisitions in the country’s financial industry in recent years. Its terms are expected to be finalized in the coming months.

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