The Israel Securities Authority (ISA), which regulates the financial markets, will come down hard on organized crime groups that attempt to infiltrate the capital markets, ISA spokesman Ori Katzir said on Tuesday.
Katzir was speaking the day after police disclosed details of a joint investigation with the ISA in which they believed an organized crime group gained control of Orline Development and Investment, whose shares are traded on the Tel Aviv Stock Exchange (TASE), and used "straw men" to defraud the company of NIS 10 million.
The authorities declined to provide details of the group ultimately behind the deception, but did say that they interviewed 11 men and arrested three, including former chief executive Yohanan Sagiv Natsia. The two other men are Avraham Arbivo and Moshe Sabag, and all three have been remanded in custody until Thursday.
Natsia is accused of stealing ten million shares and selling them to the public, after which he deposited the proceeds into the bank accounts of various criminals. Natsia didn't report the sale of the shares, as required by law, so the public didn't know that the shares were being traded and that the value of their stocks was therefore significantly lower, the police said.
"We are determined to fight this phenomenon and to uproot it," he said. "The minute there is something like this, it will be dealt with severely and immediately. We won't allow anybody from the criminal world to come and control legitimate companies in the capital markets, to undermine the faith of the public and cause damage to investors."
Natsia allegedly carried out these transactions between July 2004, when he ostensibly took control of the company, and March 2005, although he is believed to have been a front man for the real owner, Aharon Lilof.
"The suspicion was that he [Lilof] controlled Sagiv Natsia, directed him and told him what to do," said Katzir.
In June, Natsia and Lilof were arrested for allegedly embezzling NIS 9m. from Orline and hiding the theft by attributing the discrepancy in the company's accounts to a bad stock transaction, Katzir said. Not long afterwards, Lilof committed suicide and in August shareholders ousted Natsia and the board of directors. Orline is now a shell company with no operations, although until 2001 it was involved in real estate and in 2004 it said it was entering the market for electronics products.
The arrests followed a six month probe by the ISA and the police's Serious and International Crimes Unit, a cooperation that helped bring about those arrests, Katzir said.
"Between the two authorities there is a good coordination that exploits the fact that the police can understand and investigate these specific criminals a little better, while our area is securities crime," he said.
Katzir declined to say if the ISA is conducting other investigations into capital markets fraud, but did say the authorities believed other criminal activity may exist in the financial markets.
"Of course there are suspicions. If there weren't suspicions we wouldn't carry out this cooperation," he said. "We don't have any illusions that people will stop looking for creative ways of stealing money, it's not something that will happen," he added.
"We don't know if it's widespread or not, which is exactly why we conduct investigations," he said.
David Zwebner, the chief executive of Commstock Financial Consultants, said it was the ISA's vigilance over the past few years that had helped keep the capital markets safe for investors.
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