# Fulfillment Fund Affair: Implications for the Domestic Capital Market ## If there are no sophisticated players,…
# Fulfillment Fund Affair: Implications for the Domestic Capital Market
## If there are no sophisticated actors, the Securities and Exchange Commission will be the responsible adult who reads the reports to the public; What will be the fate of legal opinions of lawyers in the capital market?
[Racheli Bindman] (https://mail.google.com/mail/?view=cm&fs=1&tf=1&to=raheli.bindman%40calcalist.co.il)15.09.19
Investigating the Securities and Exchange Commission against the popular real estate investment fund Realization is no longer just investigating investigative reporting failures for investors and presenting misleading information. The fund was delayed for questioning and then released under restrictive conditions one of the fund's partners, Hanan Shemesh, and CEO Ron Berkowitz. The investigation revolves around the suspicion of misleading reports made by the fund managers who have been raising funds for its real estate projects from 2017 through the publication of a prospectus subject to the provisions of the Securities and Exchange Commission. This is after the fund's managers did not report his involvement in the criminal activity of one of the real estate developers with whom she works in the United States for months after learning of it.
Anat Guetta, chairman of the Securities and Exchange Commission, goes all out against the conduct of the fund managers, at a stage that is at the criminal and non-administrative level, exactly six months after Calcalist disclosed the complicity of its entrepreneur partner, has two important effects. First, on the authority's regulatory level, it demonstrates that the fulfillment charge of becoming a reporting company as a condition for raising investors was not a lip service. Second, on the business level, the results of the investigation may shake up the relationship between the companies and their legal counsel and shake the entire community of attorneys.
First effect - someone reads the prospectus to the public: Three years ago, the chairman of the then Securities and Exchange Commission, Prof. Samuel Hauser, stormed the field of unmanaged investment. The low interest rate has dragged the general public, which on one hand fears stock and bond investments on the stock exchange, to be tempted by high risk-free returns on investment funds that have operated far from the IPO's scrutiny eyes. Hauser then stopped the activity of Amir Bramley's Sling Investment Fund on suspicion of investor fraud, but on the other hand gave green light to the investment fund of Avi Katz and Hanan Shemesh, which was at the height of its operations.
The fund has branded itself as one that wants to allow the public to enjoy the “wealthy” real estate investments and allow each household to invest several tens or hundreds of thousands of shekels and enjoy high returns while riding the boom in the real estate market. In order to continue to operate, and to raise billions of the public money, fulfillment realized that it had to follow the rules dictated by Hauser - publish a prospectus and sponsor it under the rules of the Securities and Exchange Commission.
What else? The prospectus advertising model did not really fit the fulfillment activity. No regulator is naive enough to think that any ordinary citizen who decides to buy a bond or stock exchange will read the prospectus of the issuing company or monitor the stock exchange reports. The method is based on reliance. The sophisticated actors - institutional bodies that manage public finances read the prospectuses, bargain with the companies, compete with the issue price and determine the value of the traded paper on a daily basis. The general public actually "rides" on those sophisticated players and buys in the offering and later on the market based on the value that the players have defined that all the information is in their possession.
However, in the event of fulfillment, sophisticated players are not even participating, or vice versa, in its recent fundraising efforts, it even appealed to a wider audience of soldiers and students, lowering its minimum investment threshold from NIS 100 to NIS 20. The prospect that investors have read the prospectus detailing its activities and projects including past returns, failures, management fee model, and a breakdown of the risks involved, as well as current reports that include the release of financial statements and reveal potential delays and rent distress, aims for zero. In the event of fulfillment, there is no “responsible adult” in the form of an institutional body that does this work for the public.
This may also be why fulfillment managers were comfortable thinking that nothing would happen if they didn't immediately report the trouble the developer was working with on a project in Michigan, because who's paying attention anyway? And just here you enter the picture Anat Guetta who finds herself doing the work of the institutional bodies for the public. Realization investors didn't notice? Didn't read the reports and missed the alleged failure in reporting? The Securities and Exchange Commission is doing the job for them. The effect of the investigation against fulfillment is not only a deterrent from failing to report material information to investors, but may not specifically report on investments aimed at the general public, which are expanding.
For the past two years, Guetta has been working to promote and encourage controlled investments that will be made available to the general public, including real estate, infrastructure, high-tech, and even hedge funds. In the face of fulfillment, Guetta is signaling that it will not allow where and where regarding full and transparent reporting to investors, whether or not they read the reports. If the public does not go and read the reports, the Securities and Exchange Commission signals that it will do so for it.
? Anat Guetta Chair of the Israel Photo Authority: Oral Cohen
Second effect - the willingness of attorneys to give legal opinions is in jeopardy: Beyond the broader story involving the anti-fulfillment investigation into alleged misleading information presented to investors, the affair provokes a stir in the legal community so that the results of the investigation may change the boundaries of the relationship between a lawyer and the firms he represents. The person who was investigated in a warning alongside the accomplished partner Hanan Shemesh and the fund's CEO, Ron Berkowitz, was one of the lawyers in the capital market - Adv. Ilanit Landsman, a partner in the prestigious law firm Herzog Fox Neeman.
As far as is known, Sun's defense claim is likely to be "reliance" - he is consulting with lawyers at Herzog Fox Faithful and who have assumed that there is no need to report in real time the indictment filed against the developer. Last April, shortly after Calcalist revealed the affair, Hanan Shemesh chose to interview and present his position. Even then, the main argument that led to his defense was the reliance on the legal advice he received. In response to Calcalist's question that he knew about the indictment against the developer as early as May 2018, but chose not to inform investors about it, he replied “In late May when we returned to Israel, we immediately consulted the lawyers at the Herzog office. We asked what to do. I have daily conversations with Attorney Ilanit Landsman from the office. We decided to talk to the entrepreneur's lawyer and ask for everything he told us in the US written. They talked about being in talks with the Securities and Exchange Commission to reach a settlement with ransom and were also asked how this publication would affect such a settlement. ”
In other words, by that time, Sun was blaming fingered attorneys for allegedly giving him peace of mind not to report. This ping-pong between lawyers and stock companies whether to report or not, is a routine matter. It is in the interest of the company to report the minimum required, mainly to maintain a normal and proper course of business while the lawyer should be on the one hand the older one after the law before him and on the other hand to help the companies get what they want.
Beyond the words of Shemesh, it is not really known what happened in the rooms between him and his power in Herzog Fox Faithful and the ultimate responsibility for the failure to report is the company's. However, Landesman's investigation into the case raises poignant questions about lawyers' ability to give legal opinions on the interpretation of the law. Many times in the life of a company it presents legal opinions to justify such and such moves, from issues of reporting, conflicts of interest, interpretations of laws and so on. Do lawyers now have to worry about giving such opinions that they too will become the subject of investigation?
[https://www.calcalist.co.il/markets/articles/0,7340, L-3770339,00.html] (https://www.calcalist.co.il/markets/articles/0,7340, L-3770339,00.html)
Affair Fund Affair: Implications for the Domestic Capital Market
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