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
14 Indictments Filed (19 Files TBD)
11 Court Judgments (7 Trial-Court Verdicts; 4 Appellate Decisions)
Enforcement Tools
Traditional Enforcement
•
•
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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
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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
• 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
• 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:
a)
Severe violations – 7 years from time of conduct
b)
Intermediate violations – 5 years from time of conduct
c)
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
1. Monetary fines
2. Compensatory disgorgement
3. Order to remediate and implement preventive measures
4. D&O Bar
5. License revocation
6. 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.
THANK YOU