2. MARCO TEÓRICO
2.2. Marco teórico
2.2.2. Comportamiento del consumidor
During the year, the Supreme Court handed down two verdicts in criminal appeals:
a. In February, the Supreme Court accepted the State's appeal of the acquittal on
grounds of reasonable doubt of Discount Investments Corporation Ltd. (hereinafter - DIC), Dov Tadmor, Shlomo Cohen and Yosef Yehonathan Buch. The defendants were acquitted by the Tel Aviv District Court in Criminal Appeal 70949/02 (see 2004 Annual Report, p. 76, Section A(5)), in which they were charged with violations of Sections 36 and 53(a)(4) of the Securities Law, and failure to comply with the Periodic and
Immediate Reports Regulations. The Supreme Court overturned the District Court's
decision and convicted the defendants of 18 violations of which they were indicted, in accordance with the Magistrate Court's decision (see 2002 Annual Report, p. 59,
Section A). The Supreme Court concluded that both the passive and active aspects of
the factual basis for the violation took place. The passive aspect of the violation is reflected in the failure to file the associate companies' reports along with DIC's reports. These reports were to be filed with the Stock Exchange and the Companies Registrar.The active aspect of the violations is reflected in the filing of a report which included "misleading information" by way of omitting the associate companies' reports. These reports constitute material information concerning the reporting corporation, necessary for a reasonable investor.The Court reached the conclusion that the mental element of the violation, which requires that the prosecution prove that the defendant misled average investors, was proven by virtue of the
'expectation' precedent. Meaning, that the defendants were aware of a near certain
possibility of misleading a reasonable investor through their failure to append the
reports. The expectation precedent applies in the present case as: (a) the associate
companies' reports were material to DIC's business, and the defendants were proven to have been aware of the material nature of this information. (b) the defendants' plan to omit the reports and the manner in which this plan was carried out indicate expectation of a near certain possibility that failure to disclose the material information would mislead reasonable investors. (c) it was determined that the
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motive for the defendants' omitting the information does not constitute part of the expectation precedent, but rather an external element of the components of this test. Therefore, the fact that the company was seeking to appease its associate companies due to their concern for disclosing commercial secrets which would damage their competitiveness, and did not intend to harm reasonable investors, is irrelevant. Similarly, the Court ruled that the violations are not subject to limitation, despite being committed between 1990 and 1995 and despite a limitation period of five years. This, as the effective date is the date on which the omissions were
rectified.Application for Criminal Appeal 11476/04.
In April, the Supreme Court sentenced the defendants as follows: (1) Tadmor was
sentenced to 20 months in prison should he commit any further violation under the Securities Law which is punishable by three or more years in prison, within three years of the verdict. Furthermore, he was fined NIS 600,000, substitutable for 14
months in prison. (2) Cohen was sentenced to 10 months in prison should he commit
any further violation under the Securities Law which is punishable by three or more years imprisonment, within three years of the verdict. Furthermore, he was fined NIS
250,000, substitutable for 6 months in prison.(3) Buch was sentenced to 14 months
in prison should he commit any further violation under the Securities Law which is punishable by three or more years imprisonment, within three years of the verdict.
Furthermore, he was fined NIS 350,000, substitutable for 9 months in prison.(4) DIC
was fined NIS 800,000. Application for Criminal Appeal 11476/04.
b. In June, the Supreme Court rejected the appeal filed by defendants Ian Nigel Davis
and Aviv Algor contesting their conviction, and accepted the appeal of their sentence
as issued by the District Court. The Supreme Court upheld the charges of which the
defendants were convicted by the District Court. These charges include, inter alia, reporting with an intention to mislead a reasonable investor under Section 53(a)(4) of the Securities Law in conjunction with Section 37 of the Law (see 2009 Annual Report, p. 123. Section 1). The Court accepted the appeal of the defendants' sentence on the grounds that there is no reason to differentiate between the penalties prescribed by the lower instance court for each of the defendants. The Court sentenced each of the defendants to two years in prison, of which one year suspended sentence, provided that they not commit any further violation of which they were convicted for a period of two years. This is in contrast to a sentence of 24 months active prison sentence ruled for Algor and 18 months active prison sentence ruled for Davis by the District Court. The Supreme Court did not change the fines imposed by the lower instance court on the defendants. These fines remain at NIS 2,000,000, substitutable for 18 months in prison, for each of the defendants. Criminal
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IX
Investigations and Intelligence Department
The Investigations and Intelligence Department implements the policies of the ISA’s Chairman regarding deterrence as well as streamlining the processing of investigation files. During the reporting year, the Department continued its efforts to decrease the time elapsed between receiving an order to commence an overt investigation and the actual start of the overt investigation, so as to shorten the length of the investigation and render the overall investigation processes more efficient.
During the past year, as part of the ISA’s globalization strategy, the Department increased its responsiveness to judicial inquiries from foreign regulators under the conventions which it has signed.
In addition, cooperation between the ISA’s Investigations and Intelligence Department and other enforcement agencies continued to increase, as well as cooperation with Israeli enforcement agencies, as part of their efforts to defeat economic criminal activity.
The Department also increased its enforcement of offenses such as the inclusion of misleading information in prospectuses and financial statements, placed emphasis on reports involving international real estate activities, with the help of intelligence, and was actively involved in investigating these offenses. As a result, there was increased activity in the investigation of cases in this area.
The Investigations and Intelligence Department identified and investigated a number of events regarding securities trading in institutional entities, in which senior officers and employers allegedly engaged in fraudulent activity.
The Department has begun preparations for the assimilation and application of the Improvement of Enforcement Procedures Law, which is scheduled to undergo its second and third reading in the Knesset in the near future.
Table 24: Investigation cases forwarded to the
Investigations and Intelligence Department in the past five years, by types of offenses
Type of offense 2006 2007 2008 2009 2010 Total
Securities fraud 5 1 2 4 4 16
Use of inside information 4 3 2 6 2 17
Inclusion of misleading information (in prospectuses, financial
statements or immediate reports)
2 2 5 4 5 18
Delinquent filing and non-filing 1 142 1 - - 3
Unlicensed portfolio management
or investment advice 2 - - - - 2
Judicial inquiries 5 8 7 9 13 42
Offenses by an employee of a stock
exchange member and prohibited 1 1 - - - 2
42 These data include the “Heftziba Affair”, in which additional offenses of the Penal Law and Prohibition on Money Laundering Law were investigated by special authorization.
144 acts by a licensed investment
portfolio manager
Disciplinary offenses - 1 - - - 1
Offenses under the Joint Investment
Trust Law - 1 - 1 - 2
Offenses under the Penal Law:
bribery, theft, obtaining by fraud - - - 2 1 3
Total 20 18 17 4326 25 106
Table 25: Cases where it was decided whether there was sufficient or insufficient prima facie evidence that an offense had been committed in the
past five years
Year
Cases with insufficient prima
facie evidence of offenses
Cases with sufficient prima facie evidence of offenses Total 2006 1 9 1044 2007 2 9 1145 2008 4 16 2046 2009 0 12 1247 2010 3 9 1248 Total 10 55 65
Table 26: Investigation cases forwarded to the District Attorney's Office in the past five years, by main type of offense
Type of offense 2006 2007 2008 2009 2010 Total
Securities fraud 7 3 4 3 3 20
Use of inside information 1 3 6 4 4 18
Inclusion of misleading information (in prospectuses, financial statements or immediate reports)
3 3 4 4 3 17
Offenses by an employee of a stock exchange member
- 1 - - - 1
43
These data include three files which have been split off existing cases. 44
These data do not include three cases of judicial inquiries requested by a foreign country, the findings of which were forwarded to the foreign authority.
45
These data do not include five cases of judicial inquiries requested by a foreign country, the findings of which were delivered to the foreign agency.
46
These data do not include two cases of judicial inquiries requested by a foreign country, the findings of which were delivered to the foreign agency.
47 These data do not include seven cases of judicial inquiries requested by a foreign country, the findings of which were delivered to the foreign agency.
48These data do not include 11 cases of judicial inquiries requested by a foreign country, the findings of which were delivered to the foreign agency.
145 Delinquent filing and non-
filing
- 3 1 - - 4
Obtaining by fraud - - 1 - 1 2
Offenses under the Joint Investment Trust Law
- - 1 - 1 2
Offenses under the Penal Law: bribery, theft, obtaining by fraud
- 1 1 2 2 6
Total 11 14 18 13 14 70
As of the end of the reporting year, the Investigations Department has 11 pending cases, where investigation is still ongoing.In addition, seven judicial inquiries are still pending.
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