Bank Mizrahi will not comment on the details, but its financial report for 2000 laconically reveals another case of major fraud from an Israeli bank. Israel Bank Discount recently revealed the details of the biggest embezzlement from any Israeli bank, at its Swiss branch.
The story began to unfold when investments department manager David "Dandi" Roth failed to show up for work at one of Mizrahi's Bnei Brak branches on April 16, 1999. Two days later the police found him at the Ganei Shulamit hotel in Ashkelon. Roth's brief disappearance sparked a chain of events including a suicide attempt and a probe that culminated in one short paragraph on page 150 of the bank's financial statement for 2000.
"There are several outstanding lawsuits against the bank and its affiliates. Among other things, these suits level accusations that accounts were charged illegally or without consent", the statement mentions.
How much Bank Mizrahi provisioned to cover any monies embezzled from customer accounts is not known, because the bank included the sum in a general provision for lawsuits. Mizrahi is barely acknowledging some of the facts and is certainly not disclosing sums. It is busy trying to shift the entire responsibility to its customers and Roth.
The facts are that for years, Roth carried out actions in customer accounts without their consent. But it is not clear what happened to monies illegally shifted between customer accounts, or how much money was involved.
One such account belonged to a businessman living abroad, Joseph Frei, represented by the law offices of Dr. Jacob Weinroth. Frey had been acquainted with Roth for 20 years. During six years of that time, Roth had been milking his account. Over the six years Roth credited the account for a total of $601,000 and charged it $683,000, making use of other customer accounts.
Roth had been empowered to carry out certain transactions in Frei's account, for instance forward currency transactions. Roth was supposed to keep Frei informed of his balance, but in practice he provided fraudulent information.
Moreover, Roth promised Frei commissions for recruiting more customers for the bank, even though the law prohibits banks from paying such commissions. Frei claims that he did recruit clients for the bank, who deposited some $8 million. Frei also states that Roth said he had deposited $150,000 in Frei's account as commission.
But in his suit, Frei claims that he had been credited with $101,000 as recruitment commission that had been deducted from the account of a customer Frei had brought to the bank, one Davidson.
Frei claims that after the scandal was exposed, the bank asked Davidson to sign a declaration stating "I did not grant power of attorney to any person to carry out actions in my account for me or on my behalf, including to Frei Joseph and/or to David Roth". Frei claims that the declaration, written by the bank, caused Davidson to understand that he - Frei - had been a party to the embezzlement, and to demand that Frei restore his money.
In its defense, the bank claims that it asked Davidson to sign the declaration in return for the bank restoring the money illegally transferred from his account to Frei's. The bank says that given the restoration of his money, it does not understand why Davidson presented a claim to Frei.
Bad client! Bad client!
Didn't anybody at Mizrahi notice what Roth was doing?
Frei's lawsuit claims that during his occasional visits to Israel, he would meet with Roth at the bank to receive an update on his accounts. Frei claims that the branch manager Asher Tzairi was present at some of these meetings. Frei specifies that on August 5, 1998, he met with Roth in Tzairi's office. Frei says he asked Roth to check his balances, all in Tzairi's presence. Frei says Roth complied and wrote the balance on a note from Tzairi's personalized notepad.
The note stated that on that day, Frei's balance was $787,000. That sum was significantly higher than the balance in practice that day.
The bank says that the manager may have been present but he had not been involved in the conversation. In its defense, Mizrahi accuses Frei of negligence. "As a reasonable person and especially as a person involved in business and finances, the plaintiff should not have been satisfied with the note he was given. He should also have investigated the meaning of the balance he was shown. If the plaintiff did not do so, it attests to his negligence in checking his accounts," the bank declares.
In other words, the bank says the customer was negligent to have trusted its investments manager, even in the presence of the bank manager.
Bank Mizrahi refused to answer questions about how many accounts were involved. Assessments say that dozens of accounts could have been hit. Apparently, some of the improper transfers were also carried out from or through Mizrahi's own transition account.
Mizrahi says only that all the customers involved in the affair had been handled properly.
The bank did not however compensate anybody, its defense implies. "The bank's duty was to restore the situation to its previous status. The plaintiff was negligent in checking his accounts," it wrote.
Meanwhile, although Roth ruined his career with his illegal actions, it is not clear whether he actually stole money or how much, let alone from whom. When the affair was exposed, Roth tried to kill himself. The courts ordered him to restore NIS 6.2 million to Frei. At the time he did not submit a defence. But since then, Roth has hired an attorney, who is trying to annul the verdict.