The appearance of Nochi Dankner in court yesterday grabbed the economic press's headlines, and pushed aside the share-pegging scandal at the investment house he controls, Clal Finance Ltd. Although the investigation into the affair has only just begun, all the details are clear, and three worrying points have emerged.
1. Oversight: For five years, a senior Clal Finance employee was able to trick everyone - the system of internal controls, other traders (including his subordinates), his colleagues at the investment house, and the members of management who were supposed to supervise him.
Clal Finance nostro manager Arie Lantsberg is suspected of manipulating shares from 2008 until recently, reaping NIS 15 million for himself and his partners. But Clal Finance claims that no alarm bells sounded. Everything was normal. No one saw, no one heard, no one spoke.
Regrettably, the "three monkeys syndrome" is just a small part of the problem. Clal Finance is far from being a negligible company in the Israeli capital market. In fact, until a few years ago, it was considered the country's leading investment house. While it is no longer what it once was, it is still a company with an controls system that is as good as the systems at its competitors. Oversight systems that the entire industry is proud of, boasts of their sophistication, and most important of all - repies on.
2. The owner as parable: The nostro account is the company's most important investment portfolio. The owner might not admit this to his customers, but he doesn't need to - the facts speak for themselves. Nostro traders are mostly the investment house's most professional and sophisticated traders, and are considered its elite unit. So long as he is allowed, it is only natural that the owner wants to ensure that his money is managed optimally. Therefore, these traders earn high salaries, fat bonuses, and a slew of incentives worth millions of shekels on one hand, and agree to work under the boss's close supervision.
Ostensibly, everyone profits from this arrangement, but in practice it does not always work. After all, the owner of Clal Finance is not the first who has apparently been tricked. Some will say that nostro money is kept separate from investors' money, and that, in theory, the latter should not be affected. Nonetheless, we cannot but wonder: if the owner cannot successfully supervise his most important investment portfolio, how can he guarantee that the public's money that he manages is safe?
3. Here we go again: In 2007, it happened at Harel Investment House; in 2010 at Psagot Investment House Ltd.; and now, allegedly, at Clal Finance. Three cases at three large and important companies in the Israeli capital market.
It may be that the current scandal will expose failings, lessons will be learned, and people will be removed. This is, of course, an important and proper process, but it is local and superficial, and the current situation requires root canal work. It is unacceptable that only one investment house which had one employee who transgressed should be made to learn the lessons; that the manipulations are carried out again and again, but suspicion arises only a after a long time (if at all); that every time that an investment institution is revealed in all its nakedness, it is always after the same failure; and that these scandals last for years, so that in the end the investigations make more noise than the penalty. It is unacceptable that the regulator has not seen fit to go into the matter thoroughly and come up with a real solution.
Synopsis of the Clal Finance scandal
Lantsberg is suspected of manipulating shares in 2008-13 with two associates. On Monday, the three men were released from jail with restrictions. The three men are suspected of buying securities during trading, selling them quickly at a higher price to accounts of Clal and institutions through which it operates, and raking in the profits. Lantsberg and his associates are suspected of making NIS 15 million, which they concealed through the use of associates' accounts.
Published by Globes [online], Israel business news - www.globes-online.com - on May 1, 2013
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