Class action filed against supervisor of banks, Trade Bank, board

The police investigation into the NIS 250 million embezzled at Trade Bank by assistant investment manager Esther Alon is still under way.

Former antitrust commissioner David Tadmor, appointed by Bank of Israel to serve as interim manager hasn't released his conclusions on the case, and those who have lost their deposits still don't know whether Bank of Israel will back them and guarantee their monies.

But shareholders refuse to wait. It was just a question of time who would be the first to file a class action suit against the bank. At mid-day a public shareholder who holds a 10% stake in the bank filed the law suit.

The NIS 18 million class action names the bank, CEO Moshe Moshe Leibovitch, Chairman and controlling shareholder Shmil Weber and the remaining board members as defendants.

In addition, the class action was filed against accounting firm Kesselman & Kesselman PricewaterhouseCoopers, who served as accountant of the bank when the embezzlement took place.

The class action was also filed against the supervisor of banks, and also against Alon, who has confessed to the criminal activity.

The claimant said that this is one of the biggest bank frauds uncovered in Israel, and that reports say that NIS 250 million was embezzled, five times shareholders equity.

The embezzlement, the class action reads, was carried out without any of the entities in charge - board members, managers, internal auditor, accountants and the supervisor of banks at the Bank of Israel - being aware of what was going on. The plaintiff claims that their failure made the embezzlement possible.

The claimant said that eight million shares are owned by the public and noted the stock exchange has suspended trade in the shares due to the embezzlement. The claimant contends that the bank's collapse has become a fait accompli, and thus the value of shares is nil. The aggregate value of all the shares owned by the public comes to NIS 25.5 million, the claimant said.

The claimant said that only a late audit by the central bank resulted in Alon confessing the embezzlement to the police, which the claimant said points to absence of suitable control systems at the bank, preventing discovery of the embezzlement at an earlier stage.

All the defendants, excluding the supervisor of banks, violated their fiduciary duty, the claimant alleged. The defendants are said to have been negligent in not adopting precautionary measures as the bank's office holders and accountants, said the claimant.

The claimant said that the supervisor of banks has a special function of ensuring the stability of the banking system. For this reason the supervisor is vested with various authorities, including general supervision and auditing powers, as well as authority to suspend bank managers from their offices, the claimant said.

The supervisor is the banking system's watchdog, but the watchdog fell asleep, the claimant said. Had the supervisor fulfilled his role suitably, skillfully, and with due diligence, the supervisor would have long ago discovered that the bank has no proper control measures, the claimant said. The supervisor, the claimant concluded, would have then instructed the bank appropriately, leading to exposure of the fraud.