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Enforcement at the Israel Securities Authority: from Criminal to Administrative Dr. Zvi Gabbay , Adv. Israel Securities Authority (ISA) – Enforcement Statistics Based on the ISA 2009 Annual Report. 14 Criminal Investigations commenced 13 Investigation Files transferred to DA

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Enforcement at the Israel Securities Authority:

from Criminal to Administrative

Dr. ZviGabbay, Adv.


Israel Securities Authority (ISA) – Enforcement Statistics

Based on the ISA 2009 Annual Report

14 Criminal Investigations commenced

13 Investigation Files transferred to DA

14 Indictments Filed (19 Files TBD)

11 Court Judgments (7 Trial-Court Verdicts; 4 Appellate Decisions)


Enforcement Tools

Traditional Enforcement

  • Criminal Enforcement – Commencing investigations and filing indictments

  • Administrative Fines – with respect to certain “technical violations”

  • License Revocation – withdrawing a firm’s authorization, prohibiting operation in financial services, preventing individuals and firms from performing regulated activities.

    Alternative Enforcement

  • Internal Investigations and applying high corporate governance standards

  • Voluntary disclosure to public and the ISA

  • Unofficial Warnings


Enforcement Challenges

Efficacy limitations of the justice system

  • Complexity of securities and financial market issues

  • Length, costs and consequences of judicial proceedings

    Lack of effective and appropriate alternatives

  • Administrative fines apply only to a narrow and limited type of violations

    Lack of sufficient human resources


Selective Use of Criminal Proceedings

Internal Costs – intelligence, investigation, prosecution, judicial resources

External Costs - defense costs, reputation damage, personal price

Many Securities-related violations go unanswered

Limited effectiveness of private enforcement

Risk of damaging public faith in financial market


Israel Securities Authority Enforcement Improvement Law (2011)

Declared goals:

  • Increase enforcement and enhance deterrence

  • Reduce the time gap between violation and sanction

  • Match the severity of the violation to the egregiousness of the offense

  • Use criminal proceedings only in appropriate and distinctive cases


Israel Securities Authority Enforcement Improvement Law (2011)

New reality post-ammendment - the law provides three types of enforcement actions:

  • Criminal Proceedings

  • Expanded Administrative Enforcement – an Administrative Tribunal will be authorized to render a variety of sanctions

  • Administrative Fines


Administrative Fines (2011)

  • Fines to be imposed on individuals, not only on corporations (up to 20% of maximum fine possible for companies)

  • Codifying procedure

    • Right to hearing

    • Alleged violator to respond within 30 days

    • Limitation periods

    • Discretion to reduce fine


Administrative Enforcement Tribunal (2011)

  • Comprised of experienced legal professionals and financial market

    professionals

  • Tribunal will sit in panels of three, chaired by an appointed ISA

    staff member

  • All non-ISA members will be appointed by the Minister of Justice


Characteristics of the Expanded Administrative Enforcement (2011)

  • Administrative enforcement precludes criminal proceedings or administrative

    fines based on the same matter

  • A non-adversarial proceeding, generally based on documentation

  • Evidence rules do not apply; the tribunal will determine its own procedures.

  • Tribunal will not be authorized to make factual determinations regarding willful

    intent; it is restricted to negligence at the most.

  • Tribunal decisions will contain detailed reasoning and will be published on the

    ISA website.


Characteristics of the Expanded Administrative Enforcement – con’t

  • Confidential proceeding

  • Enhanced judicial review

  • Limitation periods:

    • Severe violations – 7 years from time of conduct

    • Intermediate violations – 5 years from time of conduct

    • Lesser violations – similar to Administrative Fine – 3 years from time of conduct or 1 year from time ISA became aware of conduct

    • Exceptions: disgorgement – always 7 years; revoking license / permit – no SOL.

    • Indirect responsibility for any corporate wrongdoing – only on CEO, not board members.


Expanded Administrative Enforcement - Sanctions

  • Monetary fines

  • Compensatory disgorgement

  • Order to remediate and implement preventive measures

  • D&O Bar

  • License revocation

  • Suspended sanctions


Settled Remedial Orders

  • ISA Chairman, with administrative tribunal approval, may enter into an

    agreement with violator imposing sanctions on violator.

  • A Settled Remedial Order replaces previous or future enforcement actions based

    on the same matter.

  • Violator’s consent, including any evidence submitted in the course of negotiating

    the settlement, is inadmissible in criminal or administrative proceedings against

    him, based on the same matter.

    Note: inadmissibility does not apply to civil proceedings.

  • Settled Remedial Orders will be posted on ISA website.

  • District Attorney will be authorized to enter into such an agreement in criminal

    cases.



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