Former Psagot execs suspected of fraudulent trade

Tue Feb 2, 2010 7:09am EST

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By Joseph Nasr

JERUSALEM, Feb 2 (Reuters) - The Israel Securities Authority (ISA) is investigating possible fraudulent trading by two former executives at Psagot, the country's largest investment house.

The ISA said it suspected former Psagot executives David Edry and Shai Ben-David made proprietary investments designed to manipulate the value of various securities in an attempt to boost the investment house's profits and their bonuses.

"Edry and Ben David are suspected of having committed fraud in their dealings with securities in a systematic manner that stretched over a long period of time," the ISA said.

The alleged offences occurred between 2007 and 2009, when Edry was vice president at Psagot subsidiary Psagot Securities, and Ben David served as trading room manager at Psagot.

The ISA asked a Tel Aviv court to put the two former Psagot executives under house arrest.

Chief Executive Officer Roy Vermus said in a letter to Psagot employees that Edry and Ben David "ended their tenure at the company" several months ago, following a decision by the company to halt its proprietary trading activities.

He said the decision to terminate their contracts was not related to the ISA's investigation, with which Psagot was fully cooperating.

Their allegedly illegal proprietary trading activities relate to investments in corporate and government bonds, including a bond series of Delek Real Estate DLKR.TA, a unit of Israeli conglomerate Delek Group DELKG.TA.

The ISA said Edry and Ben David bought and sold Delek bonds heavily on 37 days in a 60-day period between May and July 2009. Some 50 percent of the bond purchases were made before trading closed, which drove the closing price up, it added.

The two former executives, who oversaw Psagot's proprietary account, also sold some 41 million Delek bonds over the same period, the ISA said.

It said the same strategy was used to ensure profits to the tune of tens of thousands of shekels from a number of government bond issues.

"The investigation shows that the scope of activity in those securities was in the billions of shekels," the ISA said.

"Since these are government bonds controlled by the general public, the effect of this activity on investors is considerable."

The Finance Ministry said in a statement that the investigation did not cover public assets managed by Psagot.

Private equity firm Apax Partners [APAX.UL] in December signed a deal to buy a controlling stake in Psagot from shareholders led by York Capital Management in a deal that valued Psagot at 3.1 billion shekels ($837 million).

Psagot manages assets of up to 122 billion shekels. (Editing by Will Waterman)

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