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Enforcement at the Israel Securities Authority: from Criminal to Administrative Dr. Zvi Gabbay , Adv.

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. Zvi Gabbay , Adv.

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  1. Enforcement at the Israel Securities Authority: from Criminal to Administrative Dr. ZviGabbay, Adv.

  2. 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)

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. Administrative Fines • 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

  9. Administrative Enforcement Tribunal • 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

  10. Characteristics of the Expanded Administrative Enforcement • 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.

  11. 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.

  12. Expanded Administrative Enforcement - Sanctions • Monetary fines • Compensatory disgorgement • Order to remediate and implement preventive measures • D&O Bar • License revocation • Suspended sanctions

  13. 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.

  14. THANK YOU

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