"Services" - investment advice, investment marketing or investment portfolio management, in whole or in part"
- In the indictment, the accuser reduced the charge under section 39(a)(1) to the alternative of "managing" investment portfolios in relation to the two offenses of the Consultation Law. The accuser's argument is therefore that the defendant managed investment portfolios and also made an offer to provide investment portfolio management services. The main issue to be decided is whether the defendant's actions were "investment portfolio management" and whether his inquiries were "an offer to manage investment portfolios". These issues put on the table of legal analysis the question of what would be considered management in the context of the Consultation Law.
- There is no dispute that the defendant does not hold a license that allows him to engage in investment management, and this fact is not in dispute. Nor can there be any dispute that he made the proposal. The defendant claimed that his actions do not require a license, because they do not constitute the management of an investment portfolio. According to the defendant, he installed a robot at the request of the customers, but this was done "while clarifying that the trading is carried out by the customer" and that "the customer is the one who determines all the relevant parameters", while the defendant only assists the customers. According to him, "The assistance was expressed in Kinfog (from the word configuration; Configuration), i.e., entering data at the request of the customer, who is the one who determines all the relevant data, what is the size of the transaction that the software will execute, when [the regulation] and when it will be sold, and [the defendant's] role was purely technical" (P. 1.2023, p. 10), and he also said that he was engaged only in "technological service" (written summaries of the defense, p. 1).
- We will preface by noting that the evidence placed before me shows that the defendant engaged in the management of investment portfolios within the meaning of the term in the Consulting Law, and also made an offer to manage investment portfolios (see and compare: Criminal Case (Tel Aviv-Jaffa Economy) 60588-12-18 State of Israel v. Talmor, paragraphs 320-323 (September 13, 2022) (hereinafter: the Talmor case), which dealt with trading carried out by the "Eurotrade" company).
- It should be recalled that "'investment portfolio management' is defined as 'executing transactions, at discretion, at the expense of others'.
- In order to prove the defendant's guilt, the accuser must prove the following three: that transactions were executed; that the transactions were executed "at discretion"; and that the transactions were executed "at the expense of others". There can be no dispute about the first element - that is, that transactions were made. "Transaction" is defined in Section 1 of the Advisory Law as "a transaction in securities or financial assets"; Futures contracts are included in the definition of "financial assets" in accordance with section 1 of the Advisory Law (compare the Talmor case, paragraph 321). There is no dispute that transactions were made in the clients' accounts, and this is even evident from the defendant's own statements both in court and in his interrogation (P. 9.2025, pp. 382-383; P/2, pp. 94, 96, 107, 227; See also the defendant's response to the indictment, both in writing on page 19 and in the hearing of January 22, 2023, pp. 10-11). The third element - that the transactions were carried out "at the expense of others" also took place, because there is no dispute that the trading was carried out in the trading accounts opened by the customers and belonging to them (Defendant's Testimony, September 10, 2025, pp. 381-383). It should be noted here that the defendant's claim that he "did not raise money" does not raise or lower it, because the offense does not require that the managed funds be "with him" or deposited in the defendant's account, but rather that the trading is carried out "to the account of another", as stated.
- The main dispute is regarding the second element - i.e., whether the transactions were executed according to "discretion"? Therefore, the question of when transactions will be considered "discretionary" transactions and when not - is the key question.
- In order to understand this, we will return to basic concepts regarding the format of the relationship between the service provider (who deals with management or investment advice ) and the recipient of the service (the client). It is possible to understand a number of main elements in the relationship between the two, and understanding them will help us examine the individual circumstances in the case before us.
The first component is the connection between the two and the definition of the relationship between them. This framework includes several components: summarizing the commercial terms, clarifying the client's needs and preferences, coordinating expectations, especially regarding the appropriate risk environment for the client, and defining the scope of authority for the service provider. This element finds expression in the normative arrangements in the Consultation Law. Thus, for example, Section 12 obliges the dealer to adapt the nature of the transactions he advises clients or executes for them "to the needs and instructions of each client", after he has clarified with the client the purpose of the investment, his financial situation and the other circumstances that are necessary for the matter. Section 13 of the Law imposes an obligation to draw up a written agreement that will include, among other things, "the client's needs and instructions", salary and reimbursement of expenses, and the agreement must include "a determination that the customer may terminate the engagement with the license holder at any time". With respect to an agreement with a "portfolio manager", the agreement must include additional conditions, including provisions regarding the scope of authority and discretion granted to the portfolio manager, provisions regarding types of securities, the financial assets that will be included in the investment portfolio, the relative proportion of each of them, and additional powers regarding over- or under-purchases. It should be clarified in this regard that the fact that there is no written agreement between the defendant and the customers does not indicate that he did not manage the account. The normative requirement is to draw up an agreement between the dealer and the customer. The absence of an agreement does not prove that there was nothing between them, but rather that the defendant breached one of the duties imposed on him as a dealer who engages with a customer.