Presentation - Dr. Zvi Gabbay

Enforcement at the Israel
Securities Authority:
from Criminal to
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
Criminal Enforcement – Commencing investigations and filing
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
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
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
• 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
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