(photo credit: ModelWorks/AP)
Israel's market regulator may require more disclosure from companies raising money through private securities sales after three of the country's biggest insurers lost money investing with Bernard Madoff.
Phoenix Holdings Ltd., Israel's fourth-largest insurance company, faces a potential loss of as much as NIS 48 million after placing funds with Madoff, the New York money manager who is accused by the US of running a $50 billion Ponzi scheme. Harel Insurance Investments & Financial Services Ltd., Israel's third-largest insurer, may lose NIS 55m., while Clal Insurance Enterprise Holdings Ltd. faces a possible NIS 3m. loss.
"When you see that somebody like Madoff can cause huge losses and damage the trust in the financial system, we realized that we need to rethink our role in the market, be much more intrusive and put up more barriers," Yael Almog, director of the Israel Securities Authority's Department of International Affairs, said in an interview last Thursday.
Regulators in the US and Europe are reviewing rules that allowed companies to raise money from so-called "sophisticated investors" without disclosing the same information that buyers of publicly traded stocks or bonds receive.
The European Union said last month it may revise mutual-fund rules after four mutual funds were unable to recover a combined 1.6b. of Madoff investments.
Madoff, 70, was arrested on December 11 and charged with securities fraud after allegedly confessing to running a scheme in which early investors were paid with money from later participants in his funds. Madoff, who is under house arrest in his Manhattan apartment, hasn't formally responded to the charges.
Madoff's firm also worked with Jewish charities, universities and nonprofit groups, including the Boston-based Carl and Ruth Shapiro Family Foundation, Yeshiva University in Manhattan and the Jewish Federation of Greater Los Angeles.
Yeshiva University said it had lost $14.5m. in investments linked to Madoff.
In Israel, the Technion lost NIS 25m. on Madoff investments. US businessman J. Ezra Merkin, who owns 5 percent of Bank Leumi Le-Israel Ltd., the country's biggest lender, lost more than $2b. with Madoff. Merkin resigned as chairman of the investment committee and as a trustee of Yeshiva University following Madoff's arrest.
"If a very well-known financier like Merkin wasn't able to detect Madoff's fraud, then who can?" Almog said.
Israel's regulator gives exemption on sales of financial products to institutions and large investors that it defines as "sophisticated" because it assumes they are experienced enough in making transactions to require less oversight, he said.
"Today this is all reconsidered, as the assumption of sophisticated investors has proven completely wrong," Almog said.