MK Erel Margalit (Labor Party-Zionist Union) and two former high-tech executives - the CEO of Anyclip Media and its VP strategy and business development - are currently the stars of a legal affair that sounds like a Hollywood movie. It includes accusations of defrauding of a high tech company by two senior executives, the use of company resources for private interests and the use of the company credit card to pay private expenses. For their part, the executives are accusing Margalit, who is linked to the high-tech company, of firing them illegally and in a humiliating manner in order to prevent them from continuing their exposure and correction of corruption in the company, including improperly abusive behavior, abuse of the minority shareholders, preference for creditors, defrauding shareholders, and acting against the company's interests.
The allegations against Margalit, a former contender for leadership of the Labor Party, are particularly grave, including conducting business through straw men and a company registered in the Cayman Islands as a tax shelter. The effort to find out who in this story is corrupt, however, is particularly difficult, because both sides claim to have exposed corruption by each other.
The story is described in two lawsuits filed in recent days at the Tel Aviv District Court that reveal a drama involving the unexpected firing of A, former CEO of Israeli company AnyClip Media, which has developed a platform for distributing high-quality content and text-based video. Another company involved in the story is Jerusalem Venture Partners (JVP), an Israeli venture capital fund that invests in various startups, including Anyclip, in which it has a 55% stake, together with a partner Margalit, who is allegedly the founder and controlling shareholder of JVP, and who is now one of the respondents in the lawsuits.
"A disgraceful campaign of slander"
The lawsuits describe the story of the firings from two different and completely opposite angles. One is the perspective of Anyclip, which alleges that A defrauded the company. The other is the perspective of A, who alleges that as a result of corruption he exposed in the company, the company harassed him and the employee under him, and framed him in order to conceal the corruption.
A alleges that for personal reasons, Margalit is trying to conceal his control and intensive involvement in JVP and Anyclip, "under an artificial cover of trusteeships and agents." In his lawsuit, A is leveling severe accusations against Margalit. Among other things, he asserts that Margalit is managing his business through straw men and through a company registered in the Cayman Islands as a tax shelter, while actually managing his business from behind the scenes and hiding behind various parties and entities, including Adv. Doron Stern, who was recently formally registered as a shareholder in the Cayman Islands company owned by Margalit.
The affair went to court after the parties conducted a long mediation proceeding that broke down, with each side claiming that the other had conducted the proceeding in bad faith. From the viewpoint of A, who filed his lawsuit in court one day before the company filed a countersuit, the affair revolves around his illegal firing as CEO of Anyclip a position he served in for five years, during which the company achieved great success, and the firing of former AnyClip CSO Y, the other plaintiff in the case. They both allege that they were fired in humiliating fashion in order to prevent them from continuing their exposure and correction of corruption in the company, including improperly abusive behavior, abuse of the minority shareholders, preference for creditors, defrauding shareholders, and acting against the company's interests.
Their lawsuit against AnyClip, JVC, Margalit, AnyClip chairman Gadi Tirosh, and Gil Becker, who replaced A. as CEO, alleges that they fired A., and hurriedly got rid of the remaining senior management identified with him, especially Y., whom they believed to be aware of the abuses, and to have even exposed some of them. It is further alleged that the firings were accompanied by a shameful campaign of slander and mudslinging, abuse, lack of good faith, and malicious intent against A. and Y.
According to A. and Y., since they were fired, and possibly even before that, the respondents committed extremely severe abuses against them, and spied on their private e-mails, which they read, subsequently disseminating the e-mails and their contents. It is further alleged that after they refused to halt their illegal actions, despite many requests, a complaint against them was filed with the police, and with the Israel Bar Association Ethics Committee against the lawyers who carried out the forbidden acts on their behalf.
"Waste of money and corruption"
A. and Y. also allege that they had planned to file their claim earlier, but after receiving strong pleas from Anyclip and the other respondents, they agreed to delay the filing, and to bring the matter for joint consensual mediation with a retired Labor Court judge. They add that in retrospect, they realize that the mediation time was exploited in bad faith by the respondents to develop trumped up and malicious claims.
The suit filed by A. and Y. is based on the allegation that they uncovered corruption and waste of funds in the company, which were the reason for their being harassed. The lawsuit asserts that soon after they began working at the company in 2010, A. found that the company was being improperly run with respect to the role of the respondents, JVP and Margalit, their management of the company, and the involvement of their contradictory personal interests against the good of the company. It is further alleged that A. exposed various cases of improper conduct by JVP and Margalit, including conflict of interest, abuse of the minority shareholders, and preference for creditors. According to A., he combatted these actions, and took steps to change them "for which, it turned out, he paid with his job in improper fashion, irregularly, with bad faith and maliciousness."
As an example of the forbidden actions he exposed, A describes in his lawsuit a case in which he tried to transfer the company offices from the site of JVP's offices in Jerusalem to less expensive offices. He alleges that renting the luxury offices in Jerusalem cost the company dearly in waste and unnecessary expenses, but all his requests to move the offices to more modest and less expensive facilities were strongly and harshly opposed by JVP and Margalit.
"When the plaintiff (A, E.-L.W.) investigated the matter, he found out that the reason for this strong opposition was that the company offices in Jerusalem were located in a building owned by Margalit, and that the excessively high rents and service costs paid by the company were being paid to Margalit," the lawsuit states.
As severe as the allegation by A and Y against AnyClip, JVP, and Margalit are, the statement of claim filed by Anyclip makes is clear that both sides are making extremely grave allegations. The lawsuit filed by Anyclip against A and Y alleges that the corruption in the case should be attributed to A, who, together with Y, defrauded the company.
"A served as CEO for five years, took part in board meetings, was an integral part of senior management, and was in effect the highest authority in the company. The company learned, however… that in his recent conduct, A put his personal benefit above the good of the company, and acted corruptly, with a clear conflict of interest, and severely and systematically violated his obligations as a senior officeholder in the company, including his duty to act in good faith and with due caution ," the countersuit alleges.
According to the company, A violated and neglected his duties to the company, became entangled in a web of lies and fraud, and acted together with Y to promote their personal good at company expense in violation of the duties of good faith and caution applying to them.
As part of the statement of claim, the company made an allegation explaining why A and Y acted as it alleges they did.
The company alleges that negotiations and mediation were conducted with A and Y for the past month, following their threat to file personal lawsuits against the company executives, JVP, and JVP founded Margalit unless they were paid millions of shekels. When the company refused to pay them for these unfounded claims, they filed the lawsuit against it. "Instead of acting for the good of Anyclip and promoting its business, A and Y acted from personal motives to promote their own interests," the countersuit states.
Among other things, the countersuit states that that the violations allegedly committed by A and Y were in three main areas. The first was replacing the company's valid contract with a key service provider by a new agreement with unreasonable and much worse business terms than the previous agreement. Y acted simultaneously as a consultant to the company and as a sales contractor for the service provider, while benefitting from a generous commission from the provider for the new contract signed. "Y's involvement in the devising the new agreement… was hidden from the company board," the countersuit states.
The second area was "defrauding the company in charging for A's overseas travel expenses, some of which were private, and some of which exceeded the expenses permitted for him… and the use of the company credit cards to pay for private expenses."
The third area alleged by the company was "negligence in managing the company business, scandalous firing of anyone who dared to question or disagree with A and Y's behavior, and management of the company in breach of the loyalty, trust, and caution expected of them… for personal motives, for their personal benefit, and in order to obtain forbidden benefits."
Responses
Margalit's office said in response that he was "surprised that his name has been mentioned in the statement of claims merely because of his public standing, and in order to generate pressure in a monetary lawsuit. Margalit is not involved in any way in running the company, and certainly took no part in the decision to discontinue the contract with CEO A.
"The assertion that A was fired because he transferred the company offices from Jerusalem to Tel Aviv is unfounded. In order to show that Margalit is completely uninvolved: he became aware of the decision about the transfer to Tel Aviv only in retrospect, and as someone who regards investment and development in Jerusalem as very important, he was naturally disappointed. Only when he met A at a social event did he express his feelings about it. The company was not returned to Jerusalem, and as if that were not enough, A was not fired until two years later, and Margalit also learned of that only after it took place.
"Margalit lives with his family in Jerusalem and founded the JVP Media Quarter there. He loves the city, and is proud of his achievements and activities on its behalf both in his record as a successful entrepreneur and after he left the business world for public service in the Knesset but this activity and achievements on behalf of Jerusalem have nothing whatsoever to do with the firing of A."
Answering the allegation that Margalit is managing his business through straw men and companies in the Cayman Islands, Margalit told "Globes," "This allegation is false and humiliating."
His office added, "Margalit is not involved in managing the JVP fund, neither directly nor indirectly, and not through any company in the Cayman Islands. JVP is an international fund with headquarters in Israel. It pays its legally assessed taxes and report to the state authorities according to law. Invoking Margalit's name is designed solely for purposes of extortion in a monetary lawsuit."
"The CEO failed in his job"
Anyclip said in response, "A's term as CEO and as a director were terminated by the company board, following severe failures in his job. The company has filed a severe claim against A and CSO Y, who was simultaneously a consultant for the company and a sales contractor for the company's largest service provider, for corruption, fraud, and improper behavior.
"The contract with A and Y was terminated in October 2015. After the termination, severe findings were discovered, as detailed in the lawsuit filed against them. AnyClip continues to focus on its business, the distribution and promotion of video content on leading global networks and websites."
JVP said in response, "A's term as CEO was discontinued by the Anyclip board of directors, following failures in his job. After the contract with A was terminated, prima facie evidence of corruption, breach of trust, and unethical behavior by A and Y, who was employed by the company as a consultant, was discovered. JVP will respond in detail in court."
"A lawsuit to silence A and Y"
Representing A and Y, Adv. Ariel said in response, "The lawsuit by JVP and Anyclip is a classic attempt to silence A and Y - a cynical and tactical measure using the respondents' power in response to the lawsuit filed by two senior employees who were fired after discovering, as explained in the lawsuit, corruption and abuses and acting to correct them. According to the employees, the lawsuit against them is false and groundless, and was filed in an attempt to deter them from exposing facts inconvenient to the counter-plaintiffs.
"The respondents in the countersuit, two senior employees who were greatly esteemed in the company, were, according to them, illegally fired from their jobs in a humiliating manner in order to stop them from continuing to expose Margalit's improper abusive conduct, including abusive actions against minority shareholders, preference for creditors, defrauding shareholders, and acting against the company's interests.
"Before the lawsuit was filed, the employees submitted their draft claim to the respondents. In response, the respondents promised through their legal representatives that they would prepare a "slanderous and sensational" countersuit that would make them regret their lawsuit. They did so, and their lawsuit is the result."
Published by Globes [online], Israel business news - www.globes-online.com - on December 24, 2015
© Copyright of Globes Publisher Itonut (1983) Ltd. 2015