The fog surrounding the enormous embezzlement at Bank Leumi's branch in Zurich is clearing up, although the bank has absolutely refused to divulge details.

Judging by the NIS 340 million provision Leumi booked to cover damage to customers, this is the worst incident of embezzlement any Israeli company has known.

Sources in the banking establishment told TheMarker.com that a deputy manager of the Zurich branch, a Swiss citizen who joined the bank in 1984, milked money from14 major accounts to invest in hi-tech stocks traded on Nasdaq. Some of the accounts belonged to individuals from South America and Germany. The bank executive also took out extensive credit to further leverage his fling in tech stocks.

The executive began his illegal withdrawals in 1997. His nefarious actions went undiscovered because all the accounts in question were absolutely secret. Orders regarding actions in the accounts were transmitted exclusively through post-office boxes.

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The embezzlement was discovered when an account-holders noticed that investments financed with credit had been made through the account. But the account-holder had specifically instructed that no actions whatsoever in the account were to be financed by credit. The customer's complaint sparked an investigation that ultimately uncovered the enormous theft.

The executive in question had previously enjoyed an excellent reputation, among both his colleagues and his customers. He was therefore granted total freedom to carry out actions in the accounts under his management. For two years, he shifted money between the 14 accounts, depending on the performance of the shares he chose. When one account lost money, he fleshed it out with capital from another account. Meanwhile, he skimmed off the profits made on the stocks bought using the customers' money.

Bank Leumi, which is wholly owned by the public (the State of Israel holds 41.7%), has refused to divulge any details about the case, or on preventative steps it is or might be taking. Nor is it known whether Leumi has discovered weaknesses in its control or management mechanisms that allowed the theft to continue for two years without being discovered. Leumi's Swiss branch is audited by PriceWaterhouse Cooper.