State Comptroller Micha Lindenstrauss on Tuesday recommended postponing the sale of government-owned Ashot Ashkelon Industries Ltd. to a private consortium headed by former Labor MK Avraham Burg until the company clarifies its business relations between Burg and two of his principle financial backers.
Lindenstrauss presented his opinion to the Knesset State Control Committee, headed by Mali Polichuk-Bloch (Shinui). The committee had asked the him to investigate the sale of the Israel Military Industries subsidiary company which is in the process of being privatized.
Half of Burg's 72 percent share of the company, which he wants to purchase together with T.R. Civil Engineering Ltd., is being financed by Ian Davis and Aviv Algor. However, the two investors are facing criminal charges including grand larceny and false registration in company documents and publishing information which could mislead a reasonable investor.
Because of the indictment against them, Davis and Algor were prohibited from bidding directly for the purchase of Ashot Ashkelon. If the deal goes through, their money will account for 36 percent of the company's purchase price.
"The question arises as to whether a person regarding whom it has been determined that he may not purchase a government company undergoing privatization, can underwrite a substantial portion of the purchase," wrote Lindenstrauss. "The Government Companies Authority considered the matter and did not find a factual or legal basis for rejecting Mr. Burg's request on this matter, as long as [certain] conditions were observed that prevented any connection on their part to the management or control of the company or the transfer of holdings to Messrs. Algor and Davis, conditions which are known as 'Chinese walls.'"
Lindenstrauss said his investigation had raised questions about the sturdiness of the so-called Chinese walls imposed by the Government Companies Authority which were meant to keep Algor and Davis away from the operation of the company. According to Ya'acov Borovsky, who investigated the business connection between Burg and his investors on behalf of the State Comptroller's Office, "there are a number of points indicating that the nature of the partnership is different from the one presented to the Government Companies Authority." He added that there was "a different kind of presentation [than the one submitted to the government] which grants a substantial influence [to the investors] which is different from the type of relationship that was presented [by Burg.]" According to Borovsky, the guarantees provided and the nature of the partnership itself were not as Burg, Davis and Algor had portrayed them.
Members of the committee, including Zevulun Orlev (NRP), were frustrated by the words Borovsky chose to describe his suspicions. They wanted to know explicitly whether the state comptroller suspected that Burg, Davis and Algor had lied to the Government Companies Authority in order to win the tender. But neither Borovsky nor Lindenstrauss would go any further.
When the committee asked Lindenstrauss to examine the sale of Ashot Ashkelon Industries Ltd. it expressed concern about several factors in addition to the relationship between Burg and his investors. One matter was the selling price of the company, which was pegged at NIS 16.7 million. The committee suspected that the price was too low. However, the state comptroller concluded that the price was reasonable.
There is a constitutional question about the significance of the state comptroller's opinion and its endorsement by the Knesset State Control Committee. Is the government now obliged to postpone the sale and investigate Lindenstrauss's suspicions.
Lindenstrauss said that Attorney-General Menahem Mazuz supported his findings.