In the framework of the administrative statement of claims, the Authority also raised claims regarding the content of the report dated February 5, 2019, and claimed that it was a partial disclosure. This was also argued in relation to the company's financial statements for 2018. However, as stated, the petition does not relate to these claims, and in any case there is no room for elaboration on them.
Summary of the Respondents' Arguments before the Administrative Enforcement Committee
- Lorenzi noted his experience in the field of providing credit and the fact that the borrower's breach in this case was not a material event for the company, but rather part of a normal business process. Therefore, there is no obligation to publish an immediate report about it. This is non-bank credit, in which the interest rates and collateral reflect the risk that payments will not be made in accordance with the agreement, and give the lender the flexibility to defend itself in the event of a breach and also to leverage such an event to generate additional profits. In our case, the loan was backed by strong collateral, so that the borrower's failure to meet the repayment dates did not create a risk of the loan failure, but rather a business opportunity to increase profit. Words in this vein were made by Lorenzi at the meeting of the Board of Directors on April 9, 2018.
- It was further argued that the ISA failed to substantiate its claim that the breach by the borrower constituted a material event, and it seeks to derive its substance from the substance of the loan. This is a logical fallacy since the substance of the loan does not prove the substance of the breach.
- Lorenzi argued that the new agreements that were formulated with the borrower after the breach also included an increase in the loan amounts and additional collateral. These agreements constituted the usual exploitation of a business opportunity, and as a result of them, and not as an acknowledgement of the nature of the violation, the immediate report of February 5, 2019 was published. In addition, it was noted that the small loan did not constitute an addition to the large loan, since its terms do not apply to it, and the reasons that led to the addition to the loan in the sum of ILS 100,000 were explained.
Lorenzi detailed the company's immediate reports until the full repayment of the loan, including the various interest rates, and noted that the total profit generated by the company as part of the credit provision was approximately ILS 7 million. In addition, it was claimed that an analysis of the share price following the report of February 5, 2019 and subsequent reports of fundamental violations of the loan agreement shows that investors were indifferent to information regarding violations. It was argued that this figure constitutes an indication that in the circumstances of the case, the information regarding the borrower's failure to meet some of the payments on time was not material information for the reasonable investor.