As far as the panel's factual determinations are concerned, the audit is administrative. This is an intervention on a limited scale, which will be reserved for those matters in which the panel clearly erred in applying the tests and standards in a manner that significantly deviates from reasonableness. Only in such a case will there be justification for the court's intervention in the panel's factual decision. If, on the other hand, the court is of the opinion that the overall fabric of the factual background as determined by the panel is within the realm of reasonableness, it will not intervene in the panel's conclusions – even assuming that the court, had it discussed the matter in the first place, would have reached different conclusions" (ibid., para. 62).
- This criterion for examining administrative petitions against the decision of the Enforcement Committee has been adopted in a series of decisions of other panels, and it is also accepted in my view (see, for example, AP (Tel Aviv District) 18156-12-17 Chet v. Tel Aviv Securities Authority (19.9.2019); AP (Tel Aviv District) 66058-10-21 Ahuvi v. Israel Securities Authority (August 21, 2022) (hereinafter: A Matter of My Love); AP (Tel Aviv District) 72731-10-21 Right v. Administrative Enforcement Panel, (19.12.2022) (hereinafter: The Matter of Right)).
The Obligation to Report Regarding an Event or Matter with Material Impact
- Securities trading is based, first and foremost, on information, which is the main means by which an investor is supposed to finance his steps in an informed manner (Crim. Crim. 2103/07) Horowitz v. State of Israel, paragraph 31 (December 31, 2008) (hereinafter: the Horowitz)). In the words of the Honorable Judge (as described at the time) A. Hayut "Information is the 'lifeblood of the capital market'..." (CA 7510/15 Brandeis v. Babylon Ltd., paragraph 12 (March 15, 2017) (hereinafter: The Brandeis Matter)). The provision of complete and accurate information to the capital market is guaranteed by law by imposing disclosure obligations (The Horowitz Matter, paragraph 31). The disclosure obligations serve a number of main purposes: first, to protect the reasonable investor by reducing information gaps that exist between the company holding the information and the investor; second, to protect the efficiency of the capital market through the correct pricing of securities; and third, deterring controlling shareholders and officers of public companies from fraud and manipulation (Interest Horowitz, in verse 32; The Brandeis Matter, paragraph 12; Crim. Appeal 6426/21 State of Israel v. Biton, verse 53 (Nevo 28.1.2024); Amir Licht: "And in the Dark He Searches for the Clear': Ambiguity, Softness and Substance in the Obligation to Fully Disclose" The Gross Book - Studies in Corporate Law and Business Law in Honor of Prof. Yossi Gross 107, 110 (Aharon Barak, Yitzhak Zamir and David Libai eds., 2015) (hereinafter: Licht)).
The disclosure obligation that applies to the corporation is an ongoing obligation – it applies in the "primary" market, i.e., by raising capital from the public through the issuance of securities, and it continues to apply in the "secondary" market in which the company's securities are traded on the stock exchange (Brandeis, para. 12; CA 218/96 Iscar Ltd. v. Discount Investment Company Ltd., para. 20 (August 21, 1997)).
- The Securities Law and the regulations enacted pursuant thereto impose continuous reporting obligations on a public company – one-time disclosure expressed in the prospectus, and ongoing disclosure from the date of the company's IPO, which is expressed in periodic and immediate reports (The Horowitz Matter, paragraph 31; CA 1928/93 Israel Securities Authority v. Gabor Sabrina Textile Factories Ltd., 49(3) 177, para. 9 (1995) (hereinafter: The Matter of Gabor Sabrina); Civil Code (Tel Aviv District) 13382-04-20 Gabrieli v. Delek Group Ltd., paragraph 42 (November 15, 2022) (hereinafter: The Gabrieli Matter)). Our matter relates to the obligation to report public corporations in the secondary market, which has three purposes:
"The obligation to disclose in the 'secondary market' has three purposes: first, to provide available, accurate and fast information to investors about changing circumstances that may affect the way in which they economicate their actions. The second is to deter those in power in the company from unusual behavior that could harm the company and from the use of insider information for their benefit, while allowing them to supervise their actions. and the third purpose, to establish an efficient market for securities, in which the prices of the traded securities react immediately to any information of importance, and thus assist in raising capital and developing the economy" (Gabor Sabrina, para. 9)
- The obligation of disclosure in the secondary market is anchored In section 36(a) of the Securities Law. The Reporting Regulations determine the nature of the reports that a public company is required to submit – periodical, quarterly and immediate reports on certain event controls (Chapter Tuesday to the Reporting Regulations). In addition to the reporting obligations on the dates and events that have been defined, the Reporting Regulations also include a general provision, which is prescribed In Regulation 36(a) and constitutes a kind of "basket regulation"":
"The report shall include details regarding any event or matter that deviates from the ordinary business of the corporation due to their nature, scope or possible outcome, and which have or are likely to have a material impact on the corporation, as well as regarding any event or matter that can significantly affect the price of the corporation's securities" [emphasis added, M.R.]
- The term "materiality" mentioned In Regulation 36(a) It is, in fact, a basic principle that constitutes the criterion for delimiting the scope of the duty of disclosure (The Horowitz Matter, paragraphs 36-37; CA 5320/90 A.Z. Baranovitz Properties & Rentals Ltd. v. Israel Securities Authority, IsrSC 46(2) 818, 837 (1992) (hereinafter: The Baranowitz Matter); Licht, p. 111). The law does not create a closed list of "material" data, but rather a flexible criterion into which the courts pour content according to the circumstances of the concrete cases, in accordance with the purposes of the discovery principle (The Baranowitz Matter, pp. 833-834; The Brandeis Matter, paragraph 14; Civil Code (Tel Aviv District) 28110-09-12 Malka v. Africa Israel Investments Ltd., paragraph 81 (June 25, 2015) (hereinafter: The Malka Affair); AP (Tel Aviv District) 9141-09-15 Rosen v. Israel Securities Authority, paragraph 42 (May 23, 2016) (hereinafter: The Rosen Matter)). As a rule, it has been determined that information will be considered "material" if there is a real chance that it will influence the reasonable investor in his decision regarding investing in the company (The Horowitz Matter, paragraph 37). This is information that if the reasonable investor would have known about it, it would have significantly changed the totality of the information on the basis of which he makes investment decisions in the company's securities (The Baranowitz Matter, p. 837). In the words of the Honorable Judge A. Procaccia in Civil Appeal 11476/04 State of Israel v. Discount Investment Company Ltd., para. 136 (Nevo, February 21, 2010) (hereinafter: The Matter of the Desk):
"Material information to a reasonable investor means facts whose knowledge is likely to lead to a change in the picture of the data before him, on the basis of which he makes his decision regarding the security; A material fact in this regard means a fact that may constitute an important element in a person's willingness to purchase or sell a security; A fact is essential if there is a real chance that its omission will have a real impact, direct or indirect, on the decision whether to execute a transaction or not; In order for a given matter to be a material matter that is liable for disclosure, it is not necessary that it be a decisive fact for the purpose of deciding whether to execute a transaction. It is sufficient that it constitutes one figure from a set of important data relevant for this purpose... Material information may be considered as such even if it appears marginal and trivial when it stands on its own, provided that when combined with a comprehensive set of data, its importance may become substantial...".
- In determining the essentiality of information, quantitative and qualitative aspects must be examined. Of course, information can be material due to quantitative aspects that can be attributed to the company's data. However, even information that does not include quantifiable data can be substantial due to the "qualitative" aspects inherent in it. Hence, information can be found to be intrinsic in the quantitative aspect, but essential in the qualitative aspect. (The Malka Affair, paragraph 86; The Rosen Matter, paragraph 44; Moti Yamin and Amir Wasserman Corporations & Securities 47-48 (2006) (hereinafter: Yamin Wasserman); Leah Paserman-Josephov Securities Law - Mandatory Discovery 203 (2009) (hereinafter: Paserman-Josefov); Licht, pp. 137-138).
- The Common Quote Interestingly, I'll lie: "Discovery and Discovery and Discovery and Discovery", does not mean unlimited disclosure (Civil Appeal (Economic) 62018-10-13 Brandeis v. Babylon Ltd., para. 77 (Nevo, September 8, 2015) (appeal against the judgment dismissed in CA 7510/15 mentioned above). The requirement of "materiality" is a filter whose purpose is to bring about a disclosure that will realize the purposes of the law, "For it is not for nothing that a sponge Securities Law It is entirely based on the requirement of materiality, based on the perception that the regulation of discovery is no less important." (HCJ 8338/21 The Lesser Group Limited v. Israel Securities Authority, paragraph 11 of the judgment of the Honorable Judge H. Kabub (Nevo, April 4, 2023); The Horowitz Matter, paragraph 38; AP (Tel Aviv District) 48540-06-14 CPI Drilling Ltd. v. Israel Securities Authority, paragraph 15 (December 31, 2014) (hereinafter: The CPI Matter); Yamin Wasserman, 44-43).
Publication of excess information may even impair the ability of a reasonable investor to rationally finance his steps. Certainly, this is a place where he will be overwhelmed with many details from which he will not be able to distinguish between the main and the treatment and choose those that are required in order to make an informed decision (The Horowitz Matter, paragraph 38; The Malka Affair, paragraph 79; Paserman-Josefov, p. 177). In the words of the court in the Tel Aviv District Court 14270-11-14 Cohen v. Ben Dov, (September 2, 2016) (hereinafter: The Ben Dov Matter): "Since the target audience of the information is the reasonable investors, the obligation to 'filter' the information and locate the information that is 'material' to the investing public is an obligation that applies to the company – that all the information is in its hands. The company must examine what is the material information among all the details of the information in its possession, and report to investors about it – and only about it." (ibid., paragraph 76).