The three members of the Administrative Enforcement Committee panel (hereinafter: the Committee or the Enforcement Committee) rejected the claims in the Administrative Statement of Claims regarding all the violations that were alleged.
- The petition before me was filed only in relation to the determination regarding the breach of the duty to report. The Israel Securities Authority (hereinafter: Authority) does not petition against the rejection of its claims in relation to the other two violations, even though in its opinion, the Enforcement Committee also made a mistake in relation to these violations. The respondents claim that the decision of the Enforcement Committee should be left in place and raise preliminary arguments for dismissing the petition in limine.
The parties' arguments before the Administrative Enforcement Committee
Summary of the Claims in the Administrative Statement of Claims
- On February 19, 2018, a share allocation agreement was signed between the company and Dakma, following which Lorenzi became an interested party in the company, and it was determined that he would serve as CEO and director, and that the company would begin operating in the field of providing credit backed by collateral.
- On April 9, 2018, the company's board of directors approved the granting of a loan from the company to Dakma for the purpose of Providing A specific loan of ILS 10 million per borrower. In the administrative statement of claims, it was noted that during the meeting of the board of directors, the company's legal advisor clarified that if the borrower violates the terms of the loan, the company will be required to disclose it.
- On the same day, Dekma entered into a loan agreement with the borrower (hereinafter: The Big Loan or The Original Loan And-Borrower). Among other things, it was agreed that after 30 days had passed from the date of the breach of one of the borrower's fundamental obligations without correcting the breach, Dekma would have the right to make the loan available for immediate repayment, including to realize the collateral they had given in its favor, including by way of selling them.
- On April 12, 2018, Dekma Capital reported that the company's board of directors had approved a policy for its activity in the field of collateral financing. It was reported that it has approved its engagement with DAKMA in an agreement according to which until the date the Company receives a license to provide credit or until the end of one year from the date of signing the agreement, the Company will grant DACA, which holds the license, a one-time loan by way of a credit facility, in order for the Company to provide loans to specific borrowers (hereinafter: The loan agreement with DAKMA And-The Loan Fund for DAKMA). It was noted that in order to withdraw sums from the said loan fund, the company's approval will be required, and this only after signing a loan agreement with a concrete borrower. It was also noted that a loan agreement with The borrower will be secured by means of a lien on a specific asset, and that Dekma will assign to the company its rights vis-à-vis the borrower, including the collateral. It should be noted that the Authority's position in the administrative proceeding was that the company should be regarded as having actually given the loan, with all the significance that derives from it (page 3 of the minutes of the hearing of July 26, 2022 before the Committee, Appendix 4 to Lorenzi's response).
- On April 29, 2018, the company reported that Dekma had withdrawn ILS 4 million from the loan principal that was given to it for the purpose of providing a specific loan in the amount of ILS 10 million. On June 4, 2018, the company reported that Dekma had withdrawn the balance of the loan. In a report dated April 29, 2018, it was noted that the loan (in a total amount of ILS 10 million) carries an interest rate of about 15% for one year. The loan was backed by first-degree mortgage collateral on three income-producing real estate properties located in Gush Dan, with a market value of about ILS 23 million, with a "market value of collateral needs" of about ILS 16 million. These constituted a collateral-to-loan ratio of about 43.6% and about 62%, respectively.
- On July 26, 2018, the Company provided, through Dekma, an additional ILS 342,000 to the loan (hereinafter: The Small Loan). The small loan was approved directly by Lorenzi and was supposed to be repaid within two months. Information about the provision of the small loan was not reported to the investing public.
On October 25, 2018, Dekma provided an additional supplement to the borrower in the sum of ILS 100,000, which was also approved by Lorenzi, and which the borrower was required to repay by April 2019. Information about this addition to the loan was also not reported to the public.
- In August and September 2018, the borrower made only partial interest payments for the large loan, and in October-December he did not pay at all. In addition, the small loan was not repaid, so that as of January 17, 2019, the balance of the borrower's debt due to non-payment was ILS 770,661. Lorenzi knew about the borrower's non-compliance with payments, But the borrower's breach of the agreement was not reported to the public.
- On February 3, 2019, a meeting of the company's board of directors was held. At the beginning of the meeting, Lorenzi noted that the borrower was not meeting the payments on time, and in accordance with the terms of the loan, agreed compensation amounts, arrears interest and VAT were added to the balance of the loan, so that it stands at about ILS 13 million. The approval of the Board of Directors was requested for a new addition to the agreement with the borrower, in which the balance of the loan will be increased by an additional ILS 11.6 million in exchange for the addition of additional collateral. This is subject to the approval of the Board of Directors to increase the ceiling of the DAKMA loan fund (subject to the approval of the Audit Committee).
During the meeting, the counsel advising the company clarified that it was required to report immediately on the borrower's failure to comply with the terms of the loan, when it became aware of this. At the end of the meeting, it was decided, inter alia, that subject to the comments of the company's board of directors, the engagements whose approval was requested should be approved.