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T053 Public

Translation of Immediate Report

Bank Leumi le-Israel B.M.

Registration No. 520018078 Securities of the Corporation are listed on The Tel Aviv Stock Exchange

Abbreviated Name: Leumi Leumi House, 34 Yehuda Halevi Street, Tel Aviv 65546

Phone: + 972 3 5148111, + 972 3 5149419; Facsimile: + 972 3 5149732 Electronic Mail: Yaelru@bll.co.il

13 December 2012

2012-01-309429

To: Israel Securities Authority (www.isa.gov.il) The Tel Aviv Stock Exchange (www.tase.co.il) Immediate Report regarding an Event or Matter falling outside the Ordinary Course of

Business of the Corporation Regulation 36(a) of the Securities (Periodic and Immediate Reports) Regulations, 1970

Nature of the Event: Arrangement In an Administrative Clarification

1. Bank Leumi le-Israel Ltd. (“the Bank”) is pleased to announce that on 12 December 2012, the administrative enforcement committee acting pursuant to section 52FF of the Israel Securities Law, 5728-1968 (hereinafter: “the Law”), approved an arrangement (as defined in section 54A of the Law), regarding the administrative clarification conducted by the Israel Securities Authority in connection with the publication of a profit warning by the Bank on 14 November 2011 and in connection with an offering of subordinated notes by Leumi Finance Company Ltd (hereinafter: “Leumi Finance”), pursuant to a shelf offering published on 9 November 2011. In the arrangement, the text of which is attached to this Immediate Report together with the administrative enforcement committee’s decision, the Bank and Leumi Finance agreed to accept – in exchange for the Israel Securities Authority’s undertaking not to initiate enforcement proceedings in connection with the facts on which the arrangement is based – and without by doing so admitting that these facts created any negligent acts or violations whatsoever, and while reserving any rights and claims in connection with these facts – an agreed amount of a financial sanction, of two million New Israeli Shekels each, along with a commitment regarding measures to be taken to prevent the repetition of the claimed violations. See the attached Annex.

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2. Date and time at which the corporation first became aware of the matter being the subject of the report: 12 December 2012 Time: 19:11.

The report was signed on behalf of the corporation, in accordance with regulation 5 of the Securities (Periodic and Immediate Reports), 1970, by Attorney Yael (Ben Moshe) Rudnicki, Secretary of the Bank.

_____________________________________________________________________ Name of Electronic Reporter: Yael Rudnicki, Position: Group Secretary POB 2 Tel Aviv 61000, Phone: + 972 3 5149419, Facsimile: + 972 3 5149732, Electronic Mail: Yaelru@bll.co.il

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Enforcement Arrangement Made on ____________ Between: Israel Securities Authority Kanfei Nesharim Street 22

Telephone: 02-6556555, Fax: 02-6513646 By the Chairman of the Israel Securities Authority

(hereinafter: “the Israel Securities Authority” or “the ISA”)

and

1. Bank Leumi le-Israel Ltd. Public Company 520018078

(hereinafter: “Bank Leumi” or “the Bank”)

2. Leumi Finance Company Ltd. Public Company 520028739

(hereinafter: “Leumi Finance”)

By its counsel, Attorneys Dahlia Tal and Eyal Dotan From Kantor Alhanini Tal & Co., Attorneys Rothschild Boulevard 74-76, Tel Aviv Telephone: 03-7410400, Fax: 03-7140401 Attorneys Giora Aderet and Yifat Manor From Aderet Simchoni & Co., Attorneys Amot Investments Tower, Weizman St. 2, Tel Aviv Telephone: 03-6932020, Fax: 03-6932021 Attorney Navot Tel Tzur and Attorney Yaron Lipshes Caspi & Co., Law Firm Yavetz Street 33, Tel Aviv Telephone: 03-7961000, Fax: 03-7961001

Whereas the ISA believes that there is a reasonable basis for presuming that Bank Leumi and Leumi Finance (hereinafter: “the Respondents”) have committed violations of provisions of the Securities Law -1968 (hereinafter: “the Securities Law”); and

Whereas the Respondents have expressed their willingness to enter into an administrative

enforcement agreement with the ISA, based on their agreement – solely for the purpose of this arrangement – regarding the facts described in para. 1, and without admitting that the facts described below establish negligent acts or violations, and out of a recognition of the ISA’s power to initiate an administrative enforcement proceeding regarding these alleged violations in the context of which the administrative measures listed in Part C of Chapter H-4 of the Securities Law may be

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imposed, and they have agreed to accept the agreed amount of a financial sanction and to take steps to prevent the repetition of the alleged violations, as described below; and

Whereas the Israel Securities Authority has weighed the considerations prescribed in Section

52RR of the Securities Law, and believes that this arrangement responds to the public interest, and has decided not to hold any proceedings1 against the Respondents, and instead of holding the proceedings, to enter into this enforcement arrangement with them, all in accordance with section 54B of the Securities Law;

The parties have agreed to the following arrangement:

1. The Respondents agree, for the purpose of this arrangement, and the ISA has agreed, that the following facts, which constitute the basis for the making of this arrangement, are true,: The facts: 1.1 Description of the Respondents and of their activity

Bank Leumi is a banking corporation as defined in the Banking (Licensing) Law, 5741-1981, and a public company whose shares are traded on the Tel Aviv Stock Exchange (hereinafter: “the stock exchange”). Leumi Finance is a private company fully owned (100%) by Bank Leumi, and it is therefore its subsidiary. Leumi Finance is also a reporting corporation as that term is defined in the Securities Law, by virtue of debentures, subordinated notes and capital notes that it has issued to the public and which are traded on the stock exchange. Leumi Finance’s only area of activity is raising funds in Israel for Bank Leumi, through public offerings and private offerings of securities such as debentures, subordinated notes and subordinated capital notes. The proceeds for the offerings that Leumi Finance carries out are placed in deposits at Bank Leumi for the Bank’s use, at its discretion and responsibility. Bank Leumi has also made an irrevocable undertaking to pay to those investing in these offerings the entire amount of the principal, interest and linkage, in accordance with the terms of the offering. Additionally, Bank Leumi reimburses Leumi Finance for any expenses actually incurred in connection with the offerings. The decision regarding the scope of the offerings carried out by Leumi Finance for Bank Leumi, and the timing thereof, are made by Leumi. Thus, Leumi Finance constitutes the Bank’s long arm for raising debt financing from the public. Leumi Finance’s board of directors is comprised entirely of directors who, along with their membership in the board of directors, serve in various positions at Bank Leumi, in different departments – Capital Markets, Commercial Banking and Accounting. Membership in the board of directors of Leumi Finance constitutes part of their functions as Bank Leumi employees. In the framework of their membership on the board of directors, and for the purpose of making their decisions, the members of the board of directors have brought in their professional experience and expertise.

1 In this arrangement, the term “proceedings” – as defined in section 54A of the Securities Law.

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Leumi Finance does not employ any employees separately from the Bank; rather, it receives personnel services, professional services and office and computerization services from the Bank. In exchange, the Bank receives annual management fees.

1.2 On 28 October 2009, Leumi Partners Ltd. (hereinafter: “Leumi Partners”), a fully owned subsidiary of Bank Leumi engaged in non-financial investments, underwriting and offerings, purchased 7,677,037 shares of Partner Communications Ltd. (hereinafter: “Partner”) at NIS 67 per share and for financial consideration of NIS 514,887,507. This purchase constituted 4.99% of the issued and paid-up capital of Partner. During the period from the date of the purchase until the end of 2011, Leumi Partners’ holdings in Partner continued to stand at 4.99%. The Bank and Leumi Partners classified the non-financial investment in the Partner shares as “Securities Available for Sale”.

1.3 On 1 March 2011, the price of the Partner shares began to drop below the cost of the investment. According to the accounting measurement rules, an investment in securities that are available for sale is be presented according to their fair value (in the case of traded securities – the stock market price constitutes a fair price). Any differences between cost and the fair value are to be charged to the capital fund in the context of the Bank’s independent equity. Pursuant to s. 26A of the Supervisor of Banks’ Directives on Reporting to the Public, which apply to Bank Leumi, if a drop in the fair value of a security below the cost is not temporary in nature, there must be a devaluation and the notation must be moved from the capital fund to the Profit and Loss Statement.2 According to Bank Leumi’s accounting policy regarding the matter under discussion, a decrease is considered to not be temporary in nature if the fair value of the security is lower than the value at which the security was purchased for a period of at least nine months prior to the end of the financial reporting period, and on that date as well as at a time close to the publication of the financial statement, the value is 35% or more less than the purchase cost. Nevertheless, this is only an indicator in terms of the decision as to whether a decrease is not temporary in nature, and, as stated, the objective circumstances need to be checked as well. The significance of such a devaluation is a recognition of a cumulative loss which is entirely in the profit and loss statement rather than in the capital fund (with no impact on the capital balance whether the loss is recorded in the profit and loss statement or in the capital fund), and determination of a new cost basis for the investment, from an accounting perspective. In the event of such a devaluation, if the price of the security again rises above the new cost value, the increase may not be recorded as a profit; rather, it is recorded in the capital fund. This means that the transfer of the matter to profit and loss is irreversible (the said process, including its consequences, will be referred to hereinafter as “the devaluation”).

1.4 During the preparation of the financial statements for the second quarter of 2011, the issue of the decline in the value of the Partner shares, and of the devaluation and of its recognition in the profit and loss statement arose during discussions of the board of directors of Leumi Partners and during meetings with the external auditors who audit the Bank’s statements. After the balance sheet date of 30 June 2011, the

2 See section 26A of the Supervisor of Banks’ Directive on Reporting to the Public Regarding the Annual Financial Statement.

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share price had dropped by some 40% of the investment cost. During the discussions, it was decided, in accordance with the Bank’s accounting policy, that since as of the balance sheet date there had not been a 35% drop and that a period of 9 months had not passed from the beginning of the decline in the price of the Partner shares below their cost, there was no need to make a provision for the decline in value, and that it would be recorded in the capital fund. The financial statements as of 30 June 2011 presented a decline in value of the investment in the Partner shares, as of 30 June 2011, in the capital fund, as a debit of NIS 155 million, and the Directors’ Report noted that an additional decline had occurred in the share value from the date of the statements through the date of their publication, while the Report included an announcement that by 22 August 2011, the decline of the Partner investment and of other investments had amounted to some NIS 206 million overall since the beginning of the third quarter.

1.5 On 6 September 2011, an appraisal of the Partner shares, carried out by the “Absolute Value” company for Tau Yields Ltd. (hereinafter: “Tau”), was published. The appraisal indicated that the value of a Partner share was NIS 52. This appraisal combined with additional negative indicators that appeared at that time, which were the continued decline of the share’s value on the stock exchange and the announcement by Partner, after the publication of its reports for the second quarter, that it had decided not to distribute dividends with respect to the second quarter of 2011.3

1.6 Discussions were held at the Bank and at Leumi Partners regarding the decline in value of the Partner shares during the third quarter of 2011 as well. Shortly after the publication of the Tau appraisal, the Bank and Leumi Partners resolved, inter alia, and also at the request of Bank Leumi’s and its subsidiaries’ external auditors (hereinafter: “the external auditors”), to hold a discussion regarding the devaluation, in light of the possible effect on the third quarter financial statements.

1.7 At the end of September 2011, in light of the above-mentioned negative indicators, a

decline of more than 35% as of the date of the third quarter financial statements and the continued decline in value for seven months, the external auditors told the Bank and Leumi Partners that it would be necessary to carry out a devaluation, primarily because of the decline in the value of the investment in Partner in the upcoming financial statements and its classification as being “other than temporary” and consequently, the transfer of the notation of the decline in the Bank’s books, from the capital fund to profit and loss, all of which would be needed unless the Bank and Leumi Partners presented them with an appraisal other than the one prepared for Tau, according to which the share’s value was not less than its cost, or unless some other acceptable accounting solution was found. In light of the above, a decision was made to turn to appraisers, in order to obtain an additional appraisal.

1.8 On 27 September 2011, a first meeting was held between the appraisers and Leumi Partners, in which the issue of the appraisal and the desired date for its submission was discussed.

3 Note that Partner did issue dividends for the third quarter of 2011 and the second quarter of 2012. In September of 2012, Partner resolved to cancel the company’s dividend distribution policy and to make an ad hoc decision each quarter as to whether a distribution would be carried out.

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1.9 On 30 September 2011, the Partner share price dropped to NIS 36.2 per share. 1.10 On 3 October 2011, a meeting was held at the Bank, at which the issue of the appeal

to the appraisers that had been chosen to do the work was agreed upon. At the meeting, instructions were given regarding the questions to be examined in the appraisal. It was decided that upon receipt of the appraisal, a discussion would be held and a decision would be made regarding the manner in which the decline in value would be recorded on the books and if there was a need for a devaluation, the matter of a need for an immediate report regarding a profit warning due to the decline in the Bank’s profits because of the devaluation would be examined. On the same day, a second meeting was held with the appraisers, in which the emphases that were required in the appraisal were agreed upon with them.

1.11 During October of 2011, Bank Leumi, through its senior management, decided, in

accordance with its capital adequacy policy and unrelated to the subject of the devaluation and in parallel to it, to ask Leumi Finance to carry out an offering of subordinated notes through Leumi Finance, through the publication of a shelf offering report (hereinafter: “the shelf offering report” or the “prospectus”), on the basis of the shelf prospectus published in May 2011.4 Accordingly, the Bank decided on an offering framework and a range of dates in which it would be possible to carry out the offering. The offering was approved by the Bank’s board of directors on 30 October 2011.

1.12 On 31 October 2011, the Bank decided on an estimated schedule for carrying out the offering, that the auction for qualified investors (hereinafter: “the institutional auction”), would be carried out on 7 November 2011 and the auction for the public would be held on 9 November 2011, and it was noted that there was a possibility of moving the dates up by one day. On the same day, a marketing sheet was distributed to institutional investors. On the same day, work plans updated to 30 August 2011 for the handling of the offering were distributed to the relevant parties. The addressees were asked to document, as much as possible, the execution of the actions within their areas of responsibility. Paragraph 3.1 of the work plans includes a reference to the ISA’s notice to banking corporations dated 27 November 2008,5 and the work plans thus stated that as a rule, a draft shelf offering report also needed to include any important detail regarding Bank Leumi, which had not been included in the Bank Leumi financial statements.

1.13 On 31 October 2011, a third meeting was held between representatives of Leumi Partners and the appraisers. At this meeting, the appraisers gave a negative indication, that the value of the Partner shares in the appraisal would be a price between NIS 52 and NIS 54 per share. The Bank was updated regarding the content of this meeting.

4 Pursuant to section 23A of the Securities Law, a shelf prospectus is defined as a prospectus according to which securities can be offered several times on different dates. Sub-section (g) of that section provides that a shelf offering report will be considered an integral part of the shelf prospectus and that it will be treated legally as a prospectus, excluding – inter alia – regarding the items that are to be included in it, its structure and its form, which will be as specified in the Securities Regulations (Securities Shelf Offering), 5766-2005. 5 The ISA’s notice, dated 27 November 2008, to banking corporations and their subsidiaries who raise funds to be deposited in the parent company (“funding companies”), and which have a valid shelf prospectus.

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1.14 After the above-mentioned indication was received, the Bank and Leumi Partners decided that in order to carry out all the review required of Bank Leumi before the devaluation, to turn to the Supervision of Banks department and ask it for a postponement of the decision on the devaluation until the last quarter of 2011. At that time, the Partner share price fluctuated between NIS 41.4 and NIS 44.

1.15 On 1 November 2011, Leumi Finance received a letter from the Bank asking it to

prepare for the start of the offering. On the same date, a detailed schedule for the offering was issued, in which the date for the institutional auction was indicated as 8 November and the date for the public auction was indicated as 10 November.

1.16 On 2 November 2011, the board of directors of Leumi Finance approved the first

draft of the shelf offering report. 1.17 On 6 November 2011, the Bank asked the Supervision of Banks Department to

arrange a meeting. They set the meeting for 10 November 2011. 1.18 On 7 November 2011, Leumi Finance sent an email to the Bank concerning the

subject of the prohibition against making arrangements in anticipation of an offering to institutional investors. The mail indicated the dates of the offering to institutional investors and to the public.

1.19 On 8 November 2011, a meeting was held by the Bank’s representatives, Leumi

Partners’ representatives and the external auditors, to prepare for the meeting with the Supervision of Banks Department.

The auction for the institutional investors was held on the same day.

1.20 On 9 November 2011, the board of directors of Leumi Finance held a meeting at

which it approved the final draft of the shelf offering report. During the meeting, the members of the board of directors confirmed that to the best of their knowledge, the facts included in the shelf offering report were correct and were not misleading, and that the members of the board of directors were unaware of any additional facts the disclosure of which would be material. The shelf offering report was published on the same day, 9 November 2011, at 9:33 pm.

1.21 On 10 November 2011 at 9:30 am, a meeting was held at the office of the

Supervision of Banks Department, in the presence of the Bank’s representatives, Leumi Partners’ representatives and the external auditors (hereinafter: “the Bank’s representatives”) and the Director of the Supervision of Banks Division at the Bank of Israel and his assistant (hereinafter: “the Supervisor”). During the meeting, the Bank’s representatives asked the Supervisor to postpone the decision on the devaluation for another quarter. After hearing out those who were present, the Supervisor noted that there were many negative indicaores and that it appeared that it would be necessary to prove that the share’s price would soon be returning to its original level. The Supervisor clarified that there were two possible tracks for handling the issue – one, that the Supervision of Banks Department would intervene and express its view, which could take additional time, or that the Bank together with its external auditors would examine the issue and reach a decision which the Supervisor would be satisfied, taking note that the Bank would have to prove that the

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share price would most probably return to its original level, soon. The Supervisor stated that he would return to Bank Leumi regarding the preferred route.

1.22 On 10 November 2011, the public auction was held during the hours of 2:30 pm and 4:30 pm.

1.23 On 10 November 2011, at 6:00 pm, the Bank was informed by the Supervisor that it

would be necessary to carry out the devaluation already during the current quarter. 1.24 On 10 November 2011, after the receipt of the notice from the Supervision of Banks

Department, a meeting was held at the Bank to discuss the financial statements for the third quarter. At the meeting, an update was provided regarding the Supervisor’s position concerning the need to carry out the devaluation, and it was decided to convene the board of directors of Leumi Partners and the board of directors of Leumi, for the purpose of adopting a resolution to carry out the devaluation in the financial statements for the third quarter. It was also decided to recommend that an immediate report be issued regarding a profit warning, due to the cumulative factors leading to a decline in the Bank’s profits –the primary one being the decline in value of the Partner share price. At the end of the discussion, a first draft of the immediate report was produced for comments from the Bank.

1.25 On 10 November 2011, at 8:39 pm, the results of the public auction in the offering

were announced. 1.26 On 12 November 2011, the Leumi Partners board of directors met, and the execution

of the devaluation and transfer to the profit and loss statement was approved 1.27 On 13 November 2011, at 3:00 pm, Bank Leumi’s Financial Statements Review

Committee met. The background to the expected drop in profits was presented at the meeting, as well as the development of events that had led to the recommendation of the devaluation, and the cumulative factors leading to a very significant reduction in the Bank’s profits – the primary one being the decline in the value of the Partner share price – in light of which it was necessary to issue an immediate report regarding a profit warning. The committee consequently accepted the Bank’s recommendation to issue the immediate report on the expected decline in the Bank’s profits and it was decided to recommend to the Bank’s board of directors that the report be published.

1.28 On 13 November 2011, at 5:00 pm, the Bank’s board of directors met. At this

meeting as well, reasons similar to those described in para. 1.27 were presented for the committee’s recommendation to the board of directors to publish the immediate report regarding the expected decline in profits. In light of the above, it was decided at the board of directors meeting to publish the above-mentioned immediate report, and its text was agreed upon. At the end of the meeting, those present were updated as to the results of the offering, without any connection being made between the two subjects.

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1.29 On 14 November 2011, at 9:30 am, Bank Leumi published an immediate report that included a profit warning regarding Bank Leumi’s expected profit for the third quarter of 2011, according to which the net profit for the third quarter was expected to be in an amount between NIS 50 million and NIS 100 million, which is a significantly lower net profit than the profit that was reported in the first two quarters. According to the report, the drop in the net profit was caused as a result of the impact of the drop in the prices of securities traded on the Israeli stock exchange, and in particular because of the cumulative effect of the declines in the value of the investment in the shares of Partner Company. It also noted that this was forward looking information. In actuality, the decline in profits in the financial statement for the third quarter of 2011 was smaller, and the profit in the third quarter was some NIS 156 million.

2. The ISA finds that the above facts reflect the respondents’ negligence in terms of compliance with the duty of disclosure established in the Securities Law, as explained below. 2.1 The result of the development of the events described above was that material

information relating to the devaluation which impacted on the Bank’s profits, although available to the Bank, was not, as a result of negligence, reported in the prospectus (shelf offering report) published through its subsidiary or otherwise. Two business days after the end of the offering, the Bank published an immediate report regarding material information relating to the devaluation, which had impacted on its profit.

2.2 The ISA finds that the facts regarding the devaluation and the expected significant decline, as a consequence thereof, in the Bank’s profit, constitute material information the absence of which was likely to mislead a reasonable investor and which could have impacted on the range of considerations being weighed by a reasonable investor in making a decision concerning an investment.

2.3 The ISA finds that the indication provided at the meeting with the appraisers on 31

October 2011, as described in para. 1.13, together with the previous indications, effectively led to Bank Leumi’s recognition, already as of that date, that it was necessary to carry out the devaluation, including the decline in the Bank’s profits involved in such.

2.4 In parallel the formulation of the information regarding the need to carry out the

devaluation, the offering process continued to progress, without there having been any discussion about the consequences of the said information for the timing of the offering and for the inclusion of the information in the shelf offering report.

2.5 Despite the expected offering, the respondents did not make any connection between

this issue and that of the devaluation, and therefore, despite the negative indications provided at the meeting on 31 October 2011, Bank Leumi did not seek to arrange a meeting with the Bank of Israel until 6 November 2011.

2.6 The meeting with the Bank of Israel was held four days afterwards, on 10 November

2011; during this time period, the institutional investors auction was held, the shelf offering report was published and the auction for the public was supposed to be held on the same day, in the afternoon. At the end of the meeting, it was agreed that the Supervisor would return to the Bank’s representatives with an answer, but the Bank’s

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representatives’ feeling was that the Supervisor’s position would be that the devaluation would have to be carried out in the next financial statements. The meeting with the Supervisor confirmed the conclusion that the Bank’s representatives had formed prior to the meeting, regarding the need to carry out the devaluation immediately.

2.7 The decision to recommend that a profit warning should be reported was reached, in

effect, on 10 November 2011 in the evening (after the Supervisor’s position was received), and was adopted finally on 13 November 2011, and the publication was on 14 November 2011. Thus it happened that on the date of the publication of the shelf offering report, the material information was not disclosed to the public, the report did not include this material information, and the auction for the public on 10 November 2011 was concluded without the information having been published.

2.8 The ISA believes that the acts described above indicate that the behavior reaches the

level of carelessness and negligence, since the two processes were progressing in parallel, without any connection being made between the two subjects, without anyone having examined, during the offering, the significance of the information that had taken shape regarding the need to carry out the devaluation and the expected decline in profits, without any consideration having been given to the disclosure of the information in either Leumi Finance’s shelf offering report or in the Bank’s reporting prior to the offering, or alternatively to postponing the offering until the publication of the information to the public, and without any satisfactory proceeding having been held the purpose of which would be to determine whether at the time of the offering there was material information that was known to Bank Leumi, of which Leumi Finance was unaware – Leumi Finance being the party offering the securities on its behalf.

As stated above, the ISA’s position is that such a process was necessary for the purpose of complying with the law, and its importance was even greater in light of the closeness in time between the offering and the date of the publication of Bank Leumi’s financial statements.

2.9 The decision to carry out the devaluation and its disclosure to the public should have been made after taking into consideration the offering schedule, such that a situation would not arise in which Bank Leumi was carrying out an offering, through its subsidiary Leumi Finance, while there was information regarding Bank Leumi that was material and important to a reasonable investor and which was not expressed in the shelf offering report or in the Bank’s reports.

2.10 The ISA’s notice dated 27 August 2008 to banking corporations and their subsidiaries who carry out offerings for them stated that the ISA’s staff believed that if an important detail had not been included in the banking corporation’s reports, a subsidiary of such banking corporation that wishes to offer securities to the public for the banking corporation must include that information in its prospectus or in the shelf offering report, whichever is relevant.

The ISA’s position is that by law, and according to the ISA’s notice and the work procedures at Leumi Finance, the respondents should have, prior to the publication of the shelf offering report, checked whether there was a material important detail

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regarding Bank Leumi that had not yet been published as of the date of the publication of the report and which needed to be disclosed in the report. Nevertheless, the respondents did not ascertain the situation regarding this matter and thus, through their negligence, material information was not provided to the public.

2.11 The issue of the devaluation was not brought up for discussion at any Leumi Finance board of directors meetings at which the offering was discussed. The board of directors relied on the fact that no material Bank Leumi matters were brought up for discussion within the board of directors, and it believed that there was no material information regarding the Bank that had not yet been published, and this issue was not clarified. This indicates that there was no orderly and effective procedure for ascertaining that the offering could be carried out on the date it was carried out, in a manner such that there would be no information gaps between Bank Leumi which was raising the funds and was responsible for repaying the debt, and the investing public.

2.12 The matters described in paras. 1 and 2.1-2.11 indicate that Bank Leumi and Leumi Finance, through their negligence, did not disclose to the public material facts at the time of the offering and did not include material facts in the shelf offering report as described above, when they should have known that this could mislead a reasonable investor and that it could motivate the investing public to purchase securities.

3. The Legal Framework

3.1 On the basis of paras. 1 and 2 above, the ISA finds that the respondents, jointly and

severally, committed violations of the following sections: A violation of sub-section (4) of Part C of the Seventh Schedule of the Securities Law: inclusion of a misleading item in a prospectus when the parties should have known that such inclusion could mislead a reasonable investor. A violation of section 54(a1)(1) of the Securities Law: the hiding of material facts when it should have been known that this act could motivate another person to purchase securities.

4. Enforcement measures In light of the above, the respondents undertake to accept the following enforcement measures and undertake to carry out the actions that apply to them pursuant to the enforcement measures: 4.1 Payment of a financial sanction with respect to the above violations, as follows:

Bank Leumi will pay a financial sanction in the amount of NIS 2 million, which will be paid after the administrative enforcement committee’s approval of this agreement, within 30 days from the date of the approval. Leumi Finance will pay a financial sanction in the amount of NIS 2 million, which will be paid after the administrative enforcement committee’s approval of this agreement, within 30 days from the date of the approval.

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The sanctions will be paid in the manner that the ISA directs the respondents.

4.2 The respondents will take measures to prevent the repetition of the above violations, as follows:

4.2.1 Bank Leumi undertakes to make certain that material information regarding the Bank will be disclosed to the investor public when it offers securities to the public, either by itself, or through subsidiaries.

4.2.2 The respondents will formulate and implement a new and effective internal compliance procedure that will regulate the handling of material information regarding Bank Leumi’s business that has not yet been published, in the lead-up to an offering by Leumi Finance and/or other subsidiaries that carry out offerings for Bank Leumi, prior to the offering. The procedure will regulate the manner in which the relevant information is received, the manner in which it is discussed, its consequences for the expected offering, and the manner of its disclosure prior to the offering. The respondents will ascertain that the new procedure is actually absorbed and implemented. The new procedure will be examined and updated from time to time in order to ascertain that it is effective.

5. The respondents are aware that pursuant to section 56H of the Securities Law, there is a

prohibition against either direct or indirect insurance and indemnification, with respect to the financial sanction that they have agreed to pay.

6. The respondents confirm that all the approvals that they require for entering into this arrangement have been received.

7. The respondents and their corporate officers undertake not to make, either directly or through a party acting on their behalf, any publication and/or public statements that include a denial of what is stated in either all of or any of the components of this arrangement.

8. Nothing in the provisions of this arrangement will impair the rights or duties of the respondents and/or of any position holder (including external advisers) or of any corporate officer of theirs in any civil proceedings, or will prevent any of them from taking different factual positions in other legal proceedings.

9. The ISA undertakes to refrain from initiating any enforcement proceeding pursuant to the Securities Law against the respondents and/or any position holder or corporate officer of theirs (including external advisers), on the basis of the facts described above in paras. 1-2 and which give rise to the alleged violations that are the subject of this arrangement, subject to the circumstances described in section 54B(e) of the Securities Law.6

6 Section 54B(e) provides as follows: If it is proven to the ISA Chairman that the suspect has violated any of the terms of the arrangement or that the arrangement was obtained fraudulently, the ISA Chairman may, with the approval of a panel the Chairman will appoint for such purpose, order that proceedings be initiated against the suspect after the suspect is given a notice of the ISA’s Chairman to do so, and after the suspect is given an opportunity to present arguments within 30 days from the date on which the notice was delivered; if the ISA Chairman has issued such an order, the arrangement will be deemed to be void and the suspect will not be required to carry out those terms of the arrangement that the suspect has not yet carried out, other than the terms that apply to the suspect by virtue of the application of conditional enforcement measures, pursuant to the arrangement.

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10. The respondents’ agreement to enter into this arrangement will not serve as evidence against

them or against any position holder (including external legal advisers) or corporate officer of theirs in any criminal or administrative proceeding with respect to the violations that are the subject of the arrangement, and evidence that was submitted for the purpose of this arrangement will not serve as evidence against them in any criminal or administrative proceeding, unless circumstances that are described in section 54B(e) of the Securities Law have arisen. It is hereby clarified that the respondents’ agreement regarding the facts are for the purpose of this arrangement only.

11. This arrangement will not serve to grant any rights or to impair any rights to any who's not a party to it.

12. The parties agree and are aware that the content of this arrangement will be subject to the approval of the administrative enforcement committee pursuant to section 54b of the Securities Law. Consequently, this arrangement, including the parties’ undertakings, will enter into force, only after it is approved by the administrative enforcement committee’s panel.

13. The decision of the administrative enforcement committee’s panel, along with this arrangement, will be published on the ISA’s website following its signature, and after it is approved by the administrative enforcement committee’s panel, in accordance with section 54C(a) of the Securities Law.

14. Bank Leumi and Leumi Finance will publish the matter of their entry into this arrangement and the content thereof in an immediate report, after the arrangement is signed and approved by the committee, pursuant to section 54(A) and (C) of the Securities Law.

And in witness thereof the parties have signed: ______/s/_______ ______/s/_______ ______/s/_______ Israel Securities Authority Bank Leumi le-Israel, Ltd. Leumi Finance Co. Ltd.

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Administrative Enforcement Committee

Pursuant to the Securities Law

12 December 2012 Administrative Case: 5/12

In re: Israel Securities Authority

(hereinafter: “the Israel Securities Authority” or “the ISA”)

And 1. Bank Leumi le-Israel Ltd.

(hereinafter: “Bank Leumi” or “the Bank”)

2. Leumi Finance Company Ltd.

(hereinafter: “Leumi Finance”)

(hereinafter, together: “the Respondents”)

Panel: Judge (ret.) Bracha Ofir-Tom – Chair;

Dr. Meir Sokoler – Member; Attorney Roni Talmor – Member.

Decision on Application for the Approval of an Enforcement Arrangement

Background

1. This is an application for the approval of an enforcement arrangement (hereinafter: “the enforcement arrangement” or “the arrangement”) entered into between the Chairman of the Israel Securities Authority (hereinafter: “the ISA Chairman”) pursuant to his authority under section 54b of the Securities Law,1968 (hereinafter: “the Securities Law” or “the Law”), and the respondents in this case, who are Bank Leumi and Leumi Finance. Bank Leumi, as described in the arrangement, is a banking corporation, as that term is defined in the Banking (Licensing) Law, 1981, and a public company whose shares are traded on the Tel Aviv Stock Exchange. Leumi Finance is a subsidiary of Bank Leumi (a private company which is a debenture company, fully owned by the Bank), and a reporting corporation as that term is defined in the Securities Law. Leumi Finance’s only area of activity was and is raising funds from the public for the Bank, through public offerings and private offerings of various securities.

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Nevertheless, the decision regarding the scope of the offerings carried out by Leumi Finance for the Bank, and the timing thereof, are made by the Bank, which is also a guarantor of the payment of the debt. In actuality, Leumi Finance serves as the Bank’s long arm for raising funds from the public.

2. The arrangement presented to us as an attachment to the application, and which was entered

into by the said parties on 12 November 2012, indicates that in the agreement, the ISA Chairman agreed to refrain from initiating proceedings against the respondents with respect to the violations of the Securities Law that are attributed to them (hereinafter: “the violations”); in parallel, the respondents, on their part, agreed to enforcement measures that will be imposed on them for these violations – all as described below.

The provisions of the arrangement also indicate that in it, the respondents have admitted the facts that document the course of events which, according to the ISA, formed the violations that are the subject of the arrangement, but they did not admit the negligence that, according to the ISA, related to this course of event. In other words, the respondents have not agreed to the ISA’s claim that the facts which they do admit gave rise to the violations that the ISA has attributed to them as the basis for the entry into the arrangement and in the context thereof.

3. Either way, the ISA’s position, as expressed in the arrangement, is that the respondents’ conduct in the context of the agreed upon facts that are described below, is conduct that forms two violations under the Securities Law, which are: “Inclusion of a misleading item in a prospectus when the parties should have known that such inclusion could mislead a reasonable investor”, a violation of sub-section (4) of Part C of the Seventh Schedule of the Securities Law: “Hiding material facts when it should have been known that this act could have motivated another person to purchase securities”, a violation of section 54(a1)(1) of the Securities Law. A summary of the agreed-upon facts that form the basis of the arrangement is presented below, as well as a summary of the parties’ reference to them in the framework of the arrangement. Afterwards, we present our discussion of the arrangement, with an emphasis on the considerations that guide us in choosing whether to adopt or reject it.

The agreed-upon facts, summarized 4. As the facts that are the subject of the arrangement are, as stated, agreed-upon by the parties,

we see no need to set them all out again in the framework of this decision. For the purpose of understanding the arrangement and the background for it, it is sufficient that we present only the essence of the facts that were brought before us in great detail in the framework of the arrangement itself, and in the ISA Chairman’s application for its approval, including its appendixes.

5. We will say first, that at the center of this deliberation is the ISA’s claim against the respondents regarding their failure to make proper disclosure of and to lawfully report the discussion that the Bank held regarding the devaluation of the shares it held (hereinafter: “the devaluation”). This was despite the fact that it was, at the same time, carrying out an offering

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of two series of subordinated notes, through Leumi Finance, in the amount of NIS 2.18 billion (hereinafter: “the offering”). The discussion of the devaluation, it should be clear, was conducted at the Bank together with its auditors, and later, together with the Bank of Israel, and there was, in the background, a continued decline in the value of the held shares, primary among these being the shares in Partner Communications Company Ltd. (hereinafter: “the Partner shares”). These were purchased by the Leumi Partners Ltd., a different subsidiary of the Bank Leumi (hereinafter: “Leumi Partners”) on 28 October 2009, for overall financial consideration of NIS 514,887,507; not long after the purchase, the share began to drop below the investment cost. The parties agree that the two said processes, meaning the devaluation process and the offering process, were conducted in parallel, at the Bank and at Leumi Finance. The agreed-upon facts indicate that the respondents did not pay attention to the consequences that one process had on the other, including the matter of disclosure and reporting regarding the devaluation, either in the shelf offering report that Leumi Finance published during the course of the offering process, or in any other manner.

6. To clarify, the following is a summary of the table of key events, in order of their occurrence, which the parties have agreed upon for the purpose of the arrangement, as described at length in the text of the arrangement itself: On 28 October 2009, Leumi Partners Ltd. purchased a package of Partner shares for financial consideration of NIS 514,887,507. On 1 March 2011, the price of the shares began to drop below the investment cost, which necessitated discussion at the Bank. Discussions of the matter began to be held, while the Bank was preparing its financial statements for the second quarter of 2011. On 6 September 2011, an appraisal of the Partner shares was published, which indicated an ongoing downward trend of the Partner shares on the stock exchange, to below their purchase value.

At the end of September 2011, the Bank’s external auditors clarified to the Bank and Leumi Partners that the execution of a devaluation in the next financial statements, by transferring the notation of their decline from the capital fund to the profit and loss statement, was unavoidable. In light of the above, the Bank chose to ask appraisers to obtain an alternative appraisal of the shares (hereinafter: “the appraisal”). The discussions of the decline in value and of the need to carry out a devaluation of the shares as a result of such, occurred again during the discussions concerning the Bank’s financial statements for the third quarter of 2011. On 31 October 2011, at a third meeting between representatives of Leumi Partners and the appraisers, a negative appraisal of the Partner shares was again received, and the Bank was updated accordingly. In light of the above, the Bank decided to ask the Supervisor of Banks for approval of a postponement, until the last quarter of 2011, of a decision on the devaluation required by the situation.

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On 10 November 2011, the Supervisor of Banks stated that it would be necessary to carry out the devaluation already during the current quarter. The Bank’s representatives’ request to postpone the decision regarding a devaluation for an additional quarter was denied. On 14 November 2011, the Bank published an immediate report that included a profit warning regarding its expected profit for the third quarter of 2011. The report noted that the decline in the Bank’s net profit that quarter was caused by the decline in the prices of securities traded on the stock exchange, and in particular by the cumulative effect of the declines in the value of the investment in the Partner shares. This report, as will be clarified below, was published several days after the completion of the public capital-raising pursuant to the shelf-offering report, in the framework of the offering.

7. At the same time, and without any connection to the discussions of the devaluation and the events related to it, as described above, the Bank decided during the course of October 2011 to instruct Leumi Finance to prepare for an offering of the deferred notes mentioned above, through the publication of a shelf offering report (hereinafter: “the shelf offering report”), on the basis of the shelf prospectus published in May of 2011. The following are the main events relating to the offering, in the order of their occurrence. On 30 October 2011, the offering was approved by the Bank’s board of directors. On 31 October 2011, the Bank decided on a schedule for the offering, and work plans were distributed to the parties relevant to the offering. On 9 November 2011, Leumi Finance, in the context of the preparations for the offering, made the shelf offering report public. On 10 November 2011, the auction to the public for the offering was held, and its results were made public. Note that the Respondents have, for the purpose of the arrangement, admitted all the facts involved in the events described here and in the text of the arrangement.

The admission of the facts and the question of whether violations have taken shape

8. It appears, generally, that since the agreed-upon factual framework on which the arrangement is based has been placed before us, and the Respondents’ agreement to the proposed enforcement measures have been expressed in the text of the arrangement, there is no need to discuss at length the legal disputes regarding the matter of whether or not the element of negligence that is required in order for the violations to have taken shape was present, nor is there a need to discuss the consequences of the Respondents’ failure to admit the alleged negligence. Section 54b(b) of the Law provides, in reference to the content of an enforcement arrangement: The ISA Chairman may, in the context of the arrangement, undertake to refrain from initiating proceedings or from continuing proceedings against the suspect with respect to the violation or offense which is the subject of the arrangement, if the suspect agrees to be subjected to – with regard to a violation, any of the enforcement measures listed in Article C of Chapter 8-D that could have been imposed on the offender for the violation.

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We see that this section makes no reference to the “suspect’s” admission of the fact of the violation, as a basis for its having taken shape, or, later on, as a condition for the approval of the arrangement (see also, the explanatory material for the Proposed Increased Efficiency of Enforcement Procedures at the Israeli Securities Authority (Legislative Amendments) Law, 5770-2010, Draft Bills 474-473, 489); this conclusion is obvious. A comparative law view is appropriate regarding this point, as was discussed at length by the ISA’s learned counsel in the framework of her application for the approval of the arrangement. It suggests that the Israeli legislature is not unique in taking the approach that there is no need for an admission as a condition for an enforcement arrangement such as the one before us, since this is also the approach taken by the law of other locations worldwide. The approach taken by the American securities authority, the Securities and Exchange Commission (hereinafter: “the SEC”) is worthy of note; the SEC has for many years entered into enforcement arrangements in which the offending party makes no admission of a violation. This approach was recently discussed in the Citigroup case, in which the judge for the United States District Court for the District of New York rejected an enforcement arrangement entered into by the SEC and Citigroup, because the offender did not admit the securities fraud violations attributed to it (see U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., 827 F.Supp. 2d 328 (2011). The lower court judge’s ruling was overturned and criticized, and the appeals court held that an enforcement arrangement which is not based on an admission should not be viewed as an arrangement which is not in the public interest.

‘Finally, we question the district court’s apparent view that the public interest is disserved by an agency settlement that does not require the defendant’s admission of liability. Requiring such an admission would in most cases undermine any chance for compromise [ . . . ] It is commonplace for settlement to include no binding admission of liability. A settlement is by definition a compromise.’

Note that we have also recently dealt with the dilemmas derived from the legislature’s treatment of the status of the admission in the making of an enforcement arrangement between the violating party and the ISA, in a decision we issued in the Mivtach Shamir-Tnuva case, as follows:

‘Is it possible that an enforcement arrangement such as that before us can be based entirely on facts that are denied by one of the parties to it? Without the confirmation of the facts, why do we need an arrangement? Or is it possible that the signatories of the arrangement wished to inform us that the contracting corporations do not admit the violations attributed to them by the ISA, as distinguished from a refusal to admit the facts? It is undisputed that in contrast to a plea bargain arrangement which is entered into in the context of an ordinary criminal proceeding, an offender

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who signs an enforcement arrangement is not required to admit the violations that are attributed to him. The question remains as to what is the significance of a signature on an arrangement which is based on facts that give rise to a violation of the law, when these are not accepted by a signatory?’ [Administrative Case 1/12, para. H.)

There, we stated our view that although in ordinary cases, an admission by an offender regarding the violations attributed to him is not required in order for the arrangement to be upheld, it is still generally necessary to examine the consequences from the public’s perspective of the non-acknowledgement of the facts that create the violation, for the approval of the arrangement. We added there as follows: “It seems to us that in any event, in the future, it will be necessary for the ISA to consider the public aspect involved in a non-admission by the suspect or offender, regarding the commission of the violations; and even more so, of a failure to admit the relevant facts, and in particular, those that are clear and which have been disclosed on the MAYA and MAGNA systems.”

9. In this case, as has been noted, the Respondents did admit, for the purpose of the arrangement, all the facts that the ISA has attributed to them, while denying the negligence that characterized their acts. The arrangement does not specify and the entry into the contract is not required to describe, all the reasons that the Respondents raised in their claim that they were not negligent. The ISA counsel’s argument that it is sufficient to present the facts that create the potential to establish the negligence element appears to us to be reasonable under the circumstances of the case. We note, parenthetically, that para. 8 of the arrangement, which allows the Respondents to, in the future, make factual arguments in other courts that are different from those that they acknowledged in the arrangement, is, in our view, puzzling. Why should the ISA allow a situation in which the offenders will have admitted the facts for the purpose of the arrangement that they have signed, but allows for the possibility of their being denied in other courts in the future, with the ISA’s approval?

10. We note again that according to the ISA, these are two related entities, the Bank and its subsidiary, in which, during adjacent time periods, two parallel processes were conducted. On the one hand, there was a devaluation process that occurred at the Bank during the relevant periods; and on the other hand, there was the offering process which was carried out by Leumi Finance, in parallel, on behalf of the Bank and at its direction – all, according to the ISA’s counsel, without noting the consequences that one process had for the other, especially not with regard to the disclosure and reporting duties that were imposed on the Respondents under the circumstances of the case, as described. According to the ISA, these facts indicate recklessness and negligence on the part of the Respondents, who should have examined, during the course of the offering, the nature of the information relating to the devaluation. According to the ISA, they should have considered the disclosure of the information in the shelf offering report or in a report prior to the offering, or alternatively, they should have considered postponing the offering until after the publication of the information. According to the ISA, there was no satisfactory process in place that could have identified material information, as it existed at the time of the offering, if Leumi Finance was not aware

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of it – Leumi being the entity that actually carried out the offering. This position, which the ISA has affirmed, seems to us to be correct. The corporate separation between the issuer and the Bank that benefited from the proceeds of the offering cannot lead to a situation in which information which is essential for the public “falls between the cracks” and is not disclosed to the public. It developed that only two business days after the offering, the Bank saw fit to publish an immediate report regarding the material information connected to the devaluation; no further discussion is required regarding the issue of the consequences of this information for the Bank’s profits and for an investor in it and for the investing public in general. Regarding this point, it is hard to accept the Respondents’ claim, which they made to us in the framework of the application brought by the ISA’s counsel for approval of the arrangement – the claim that the information regarding the drop in the share’s value was not material because it had no consequences for the Bank’s expected losses, or for any insolvency that threatened it. The ISA’s counsel argued correctly that such information, which was published in the immediate report, is, on its face, material information which is important to a reasonable investor who is considering purchasing securities in an offering. (On the materiality of information such as this, see Leah Fasserman Yozopov, “Securities Laws – New Developments and Trends” 5 Kiryat Hamisphat 123 (2004) at 140, CrimApp 4675/97 Rozov v. State of Israel [1999] IsrSC 53(4) 337 at p. 359; CrimCase 10985-01/11 State of Israel v. Ben Israel, per Judge Barak Nevo, at para. 36 (Nevo, 23 May 2012). See also, on the duty to disclose in a prospectus at the time of an offering, Efraim Avramson “Forecasts and ‘Soft Information’ in a Public Company – the Duty to Disclose and Principles of Legal Responsibility”, 2 Mishpatim 55 (1992), at pp. 71-77, Ronen Adini, Securities Laws (2004), at p. 773.) In any event, there is no doubt that at the time the offering was in the offing, the Respondents were required to ascertain the consequences of the discussions being held at the Bank at the very same time regarding the devaluation that was required because of the condition of the shares that it held.

The agreed-upon enforcement measures

11. The question of the reasonableness of the enforcement measures that have been agreed upon in the framework of the arrangement requires that each of the measures that were proposed and agreed upon be discussed, separately, with regard to the severity of the violation that occurred, and according to the circumstances in the background. First, the measures, as described in the text of the arrangement: (1) The first of the list of enforcement measures that an enforcement committee is empowered

to impose is the financial sanction, which is intended to reach the violating party in its pocket, and to deter others from violating the law. The Respondents in our case have taken upon themselves to pay a sanction of NIS 2 million each to the ISA for the violations, within 30 days after the date on which the arrangement is approved. We will discuss the reasonableness of this sanction below.

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(2) An additional measure that was agreed upon is a commitment by the Bank and by Leumi Finance to take measures to prevent the repetition of the violations, as follows: • The Bank undertook to make certain that material information regarding the Bank will

be disclosed to the investor public at a time that it offers securities to the public, either itself or through a subsidiary.

• The Bank and Leumi Finance undertook to formulate and implement a new internal compliance procedure that will regulate the treatment of as material information regarding Bank Leumi’s business that has not yet been published in the lead-up to an offering by Leumi Finance and/or other subsidiaries that carry out offerings for Bank Leumi, prior to the offering.

This enforcement measure is intended to regulate the manner in which the relevant information is obtained, the manner in which it is discussed, its consequences for the expected offering, and the manner of its disclosure prior to the offering. The Respondents undertook to ascertain that the new procedure is actually absorbed and implemented. The new procedure will be examined and updated from time to time in order to ascertain that it is effective.

12. In this context, we note the provision of section 52AAA the Securities Law, regarding the financial sanction, as follows: “A panel may impose a financial sanction on an offender in the maximum amounts described below, as relevant: [ . . . ] (3) Regarding a violation listed in Part C of the Seventh Schedule – NIS 5,000,000 for a corporation and NIS 1,000,000 for an individual.” This indicates that the maximum amount that could be imposed on each of the Respondents in our case, for a violation of item (4) in the Seventh Schedule of Part C of the Securities Law and a violation of section 54(A)(1) of the Law, is NIS 10 million, meaning NIS 5 million for each violation. And note that it is clear that regarding this point, there are consequences that arise from the fact that in actuality, these are two violations that arose from the same factual basis, a fact which can affect the size of the sanctions that they necessitate, as will be described below.

Are the said enforcement measures reasonable?

13. There are three considerations that the ISA Chairman must weigh when determining the enforcement measures imposed on a violating party – the severity of the acts that are the subject of the violations and the circumstances of their commission, the nature and strength of the evidence, and the ISA’s enforcement policy. 13.1 Regarding the first consideration, it should be recalled that the arrangement refers to

each of the violations pursuant to the Securities Law that have been attributed to each of the Respondents, all of them involving the areas of proper disclosure and required reporting. In our view, these violations are severe, both because of the serious adverse impact they have on the efficiency of the capital market and on its proper working, and for the basic interests of players in the market.

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Regarding the basic importance of proper disclosure in the capital market, everything seems to have been said already, such that there is no need to go into detail. It is sufficient to repeat that without the free flow within this market of the information that allows a reasonable investor to calculate his acts with understanding, and to make knowledgeable decisions regarding his investments, the market cannot survive (Adini, at pp. 38-47; CrimA 2013/07 Horowitz v. State of Israel, para. 31 (Nevo, 31 December 2008), and CA 5320/90 E.Z. Branowitz Properties and Leasings Ltd. v. Israel Securities’ Authority [1992] IsrSC 46(2) 818, at pp.829-831).

14.1 And it has already been emphasized more than once that the basic principle of the securities laws is disclosure, disclosure and more disclosure, both with regard to the primary market – i.e., at the time of the offering, and with regard to the secondary market – i.e., during securities trading on the stock exchange (see, CrimA 218/96 Iscar Ltd. v. Discount Investments Co. Ltd., per President Barak, at para. 20 (Nevo, 21 August 1997); Leah Fasserman Yozopov, “Securities Laws – New Developments and Trends”, at pp. 135-136.)

13.2 Regarding the second consideration, which is the evidentiary basis for the arrangement, it appears that this consideration is of secondary importance in terms of choosing the enforcement measure, as has been clarified in the above-mentioned Mivtach Shamir-Tnuva case, as follows: “Its main importance is that it ensures that there is a satisfactory evidentiary basis on which the ISA Chairman has based his decision to enter into the enforcement arrangement with the offenders” (see Admin Case 1/12, section 17). In our case, the review of the development of the events on which the arrangement is based is sufficient to establish, on a sound foundation, a reasonable basis for the ISA’s claims regarding the formulation of the violations under discussion on the basis thereof, and this is sufficient as well to establish a basis for a determination of the appropriate enforcement measures. An examination of the measures that were imposed in this case raise a certain question regarding the first measure, which is the financial sanction – a sanction that was, as stated, set at only NIS 2 million for each of the Respondents. Can such a sanction, imposed on a financial institution which is a key player in the economy, in which a systematic failure led to the non-flow of information between it and its subsidiary, and to its failure to have proper procedures for disclosure and reporting – can it achieve the objective of deterrence? If we have decided, ultimately, to accept the arrangement, it is only because we could not ignore the fact that this is a single specific event, which did not indicate that there had been repeated and regular negligent conduct on the part of the Respondents. Furthermore, the Respondents have, in the framework of the additional enforcement measure described above, undertaken to prevent the repetition of the violation, and if this undertaking is carried out properly, it will significantly reduce the likelihood of a repeat violation. Furthermore, we have already mentioned above that this case involves a single set of facts, or a single ongoing omission, which gave rise to a number of violations – as distinguished from the Mivtach Shamir-Tnuva case that involved various repeated

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failures, which gave rise to a number of violations, as reflected in the size of the financial sanction imposed in that case. Regarding this matter, we can draw an analogy from, inter alia, section 186 of the Criminal Procedure Law [Consolidated Version], 5742-1982, which provides that “[t]he court may convict the defendant on each of the offences of which his guilt became apparent by the facts proven before it, but it will not punish him more than once for the same act.” Additionally, we can draw an analogy from section 41M of the Penal Code, 5737-1977, which was added in Amendment 113 to that law, and which relates to the structuring of judicial discretion regarding sentencing, and provides that: (a) If a court has convicted a defendant of a number of crimes which constitute a

single event, an appropriate penalty range will be set, as prescribed in section 40C(a), for the entire event, and an overall sentence will be issued for all the crimes with respect to that single event.

(b) If a court has convicted a defendant of a number of crimes comprised of several events, an appropriate penalty range will be set, as prescribed in section 40C(a), for each event separately, and the court may afterward issue a separate sentence for each event or an overall sentence for all the events; if the court has issued a separate sentence for each event, the degree of overlap between penalties or the accumulation thereof, will be determined.

We note that while these sections deal with criminal sentencing, and our issue is the imposition of an administrative sanction through an enforcement arrangement – they still provide guidance regarding an assessment of the propriety of the enforcement measures established in the arrangement before us.

Summary

14. In the end, after weighing the considerations mentioned above, which we viewed when we

made our decision regarding the approval of the arrangement, and after weighing the advantages that are involved, overall, in the making of an enforcement arrangement relating to statutory violations in the capital market, which we have already discussed in the Mivtach Shamir-Tnuva case, we conclude that this is a reasonable arrangement which should be approved.

We have therefore decided to approve the arrangement and to adopt it as written, in accordance with the authority conferred upon us in the Law. ______/s/_______ ______/s/_______ ______/s/_______ Attorney Roni Talmor Judge (ret.) Bracha Ofir-Tom Dr. Meir Sokoler Chair of the Panel