Criminal Case (Tel Aviv) 61890-12-21 State of Israel v. Ayala Sharach Cohen

Background and facts of the indictment

1. The defendant was convicted on the basis of her admission to the facts of an amended indictment (hereinafter: the indictment) of committing three offenses under section 52D of the Securities Law, 5728-1968 (hereinafter: the Securities Law). The defendant's confession came during a small trial proceeding, and before a decision was made on the arguments raised in the trial, after the original indictment was amended.  Following her confession, the defendant's case was referred to the Probation Service for the purpose of preparing a sentencing report.
2. According to the facts of the general part of the indictment that the defendant admitted, SodaStream International (hereinafter: SodaStream or the Company) was a dual public company during the relevant period, and was traded on NASDAQ and the Tel Aviv Stock Exchange. As a dual company, SodaStream published financial reports on NASDAQ and the Tel Aviv Stock Exchange on the dates set by US regulation, i.e., an annual report within 60 days of the end of the reporting year and quarterly reports within 40 days of the end of the quarter.  During the relevant period, Daniel Birnbaum (hereinafter: Birnbaum) was the CEO of SodaStream, so he was an insider as defined in the Securities Law.  The defendant, a former employee of SodaStream, had been in close contact with Birnbaum since 2012 and knew that he was an insider in the company.  The defendant had a very basic understanding of the capital market, and the few trading transactions she carried out were made after consulting with Birnbaum or on the basis of information she received from him.
3. In the general part of the indictment, it was stated that the defendant was aware that her proximity to Birnbaum might give her an advantage as an investor in SodaStream shares, and therefore she pressured him from time to time to provide her with information about the company that would result in her making profits as a result of trading in the company's shares. He also detailed that Birnbaum was aware of the defendant's great interest in the purchase of SodaStream shares and her desire to benefit from the information in his possession about the company and its business.  Although he usually tried to dissuade her from trading in the company's shares, for fear that her activity in the stock might complicate him, Birnbaum disclosed information about the company and its business course to the defendant, even though he feared that the defendant might not comply with his requests and make use of the information he gave her.
4. Further, according to the same general part, the defendant was the owner of bank account number 40602, at branch 170 of Bank Hapoalim (hereinafter: the defendant's bank account).
5. According to the facts of the first indictment to which the defendant confessed, on February 15, 2017, SodaStream published a periodic and annual report for 2016, which presented a significant increase in a number of material indicators, including a 213% increase in the company's net profit compared to the corresponding quarter in 2015. In a press release attached to the financial report, Birnbaum reported that the company reached record profitability in the fourth quarter of 2016.  Following the publication of the report, the share price rose by about 9%.  Birnbaum, by virtue of his position, was exposed to the positive results during the preparation of the report before it was published to the public, and signed it before it was published.  The information that the financial report is expected to present the improvement in the Company's performance was internal information as defined in Section 52A of the Securities Law (hereinafter: the Internal Information for 2016).  On December 16, 2016 - February 17, 2017, the company went into a period of silence and officers were prohibited from trading its shares for fear of the use of insider information in relation to the report.
6. According to the indictment, on an unknown date shortly before the publication of the report, Birnbaum gave the defendant the inside information for 2016, even though he knew, if only by "turning a blind eye," that Cohen would use it. On February 13, 2017, following the information Birnbaum gave her, the defendant purchased 858 shares of SodaStream for approximately ILS 150,000, which constituted most of the current account funds in her possession.
7. From the day after the publication of the report until August 2017, the defendant, in three different transactions, sold all the shares of SodaStream that she purchased for a total of ILS 178,000. This activity in SodaStream shares generated a profit of approximately ILS 28,000.  During the period during which the defendant tried to sell SodaStream's shares, the defendant expressed her anger toward Birnbaum for not yielding her the financial profit she expected.  Birnbaum expressed his anger at her for using the information he gave her.  In these acts, thedefendant made use of insider information in the manner of executing securities transactions while she had insider information, and for this reason she was convicted of committing the offense of using insider information originating from an insider.
8. According to the facts of the second indictment to which it admitted, on August 1, 2018, SodaStream published its Q2/2018 report, which indicated a significant increase in the company's revenues and profits. The increase in the company's revenues was 31% and the increase in operating profit was 89%.  In a press release attached to the financial report, Birnbaum defined the report as the best in the company's history.  Following the publication of the report, the share price rose by about 23%.  As part of his position, Birnbaum was exposed to the exceptional results of the 2018/2018 quarter prior to publication and signed the report ahead of publication.  The information that the financial statement was expected to present a significant increase in the Company's revenues and profits was internal information as defined in Section 52A of the Securities Law (hereinafter: Internal Information 2/2018).  From June 16, 2018 to August 3, 2018, the company's period of silence took place, and the officers were prohibited from trading its shares for fear of the use of insider information in relation to the report.
9. According to the facts of the indictment, over the years, the company and PepsiCo Inc. (hereinafter: Pepsi) conducted contacts for business cooperation and even a merger that did not bear fruit.  Further to the above, following a former Pepsi manager's request to Birnbaum during June-July 2018, a business meeting between Birnbaum and the CEO of Pepsi (hereinafter: Navi) was scheduled for July 15, 2018 in London, a date on which Birnbaum was in London as part of a joint vacation with the defendant, which lasted until July 18, 2018.
10. On July 15, 2018, Birnbaum met with Navi and President of Pepsi (hereinafter: the meeting). During the meeting, Navi raised the possibility of business cooperation between the companies and Pepsi's strategic investment in the company, and Birnbaum rejected her proposals.  At this point, Navi suggested that Pepsi acquire the company's shares in its entirety, so that the company would be acquired by Pepsi and delisted from trading.  Birnbaum expressed great interest in the proposal, and the two agreed to an outline whereby after the acquisition, the SodaStream factories would remain in Israel under Birnbaum's management and the company would continue to sell reusable plastic bottles.  Although the price of the deal was not agreed upon at the meeting, Birnbaum told Navi that the shareholders would expect a high premium, and Navi agreed to this in principle.
11. In view of the materiality of the information regarding Navi's offer to acquire the company and the agreement regarding the outline of the transaction, this information constituted insider information as defined in section 52A of the Securities Law from the date of the meeting (hereinafter: the internal information Pepsi merger transaction).
12. On July 19, 2018, following the meeting, immediately after Birnbaum's return to Israel, Pepsi contacted Birnbaum and the parties continued to discuss the amount of the premium to the shareholders, and exchanged non-disclosure and exclusivity agreements. Subsequently, on July 22, 2018, SodaStream formed a small team for the purpose of continuing the negotiations, and the team members were instructed by Birnbaum to sign non-disclosure agreements, while warning him not to leak details about the actual conduct of the negotiations.  On August 19, 2018, SodaStream's board of directors approved the transaction's price and final terms, and on August 20, 2018, SodaStream discussed the merger agreement with Pepsi, according to which the company will be acquired for $3.2 billion.  The price reflected a premium of about 11% over the share price in the market at the time.  Following the publication of the report, the share price rose by about 9%.
13. According to the facts that the defendant admitted, during her joint vacation with Birnbaum, between July 15-16, 2018, shortly after the meeting with Pepsi representatives, when he had internal information 2/2018 and inside information about the Pepsi transaction, Birnbaum urged her to invest all of her savings in SodaStream shares immediately. In this way, Birnbaum conveyed to the defendant a message that he had inside information that his disclosure to the public was expected to significantly increase the share price, and the defendant understood that Birnbaum was urging her to act in this way because he had an immediate face that would raise the share price.  The defendant also understood that the quarter's results would be good and that another significant positive event was expected.
14. Under these circumstances, on July 17, 2018, while she was in London with Birnbaum, the defendant used almost all of the cash balance she had in her possession and purchased 614 shares of SodaStream for her account, for a total amount of approximately ILS 200,000. At the same time, it approached the Phoenix company in order to cash out a savings fund it owns in order to finance additional purchases of SodaStream shares.  On July 19, 2018, immediately upon her return to Israel, the defendant again contacted the Phoenix to redeem the savings fund, and went on to contact the representatives of the Phoenix dozens of times in the following days, imploring them to expedite the redemption of the funds, in order to take advantage of the insider information in her possession.  The defendant informed Birnbaum about her difficulties in redemption.
15. According to the facts she confessed, in order to obscure the unusual trading she had made in SodaStream shares and to conceal the offenses they committed, Birnbaum instructed the defendant to purchase additional shares with which he was not connected near the purchase of SodaStream's shares. The defendant acted as his instructions, and in parallel with her efforts to raise funds to exploit the insider information in her possession and to make additional purchases of SodaStream shares, she acted to purchase additional shares.  Thus, it purchased Amazon shares, for ILS 62,000, on Birnbaum's recommendation.
16. On July 29, 2018, after the funds from the Phoenix Savings Fund were transferred to the defendant's checking account, and after collecting money from a loan she had previously given to a family member, the defendant rushed to purchase an additional 312 shares of SodaStream in the amount of approximately ILS 100,000.
17. The defendant made the purchases knowing that the company was expected to publish a very positive financial report and that the company was expected to make another positive move, the details of which were not known to the public, and which was expected to cause a significant increase in the share price. On August 1, 2018, even before the publication of the company's financial statement, the defendant issued sales instructions with the aim of realizing some of the expected profits from the insider information in her possession.  The sell orders were at a higher price than the prices of the last transactions, withthe defendant knowing that they would not be answered immediately and in anticipation of an increase in the share price following the publication of the report.
18. Shortly after the publication of the Q2/2018 report, Cohen's instructions were formulated into transactions in which she sold 185 shares of SodaStream from her account for ILS 70,000. On August 20, 2018, shortly after Seda Stream reported to the public the signing of the merger agreement with Pepsi, the defendant sold the remaining shares of SodaStream in her account, 741 shares, for ILS 386,000.
19. The activity carried out by the defendant in the shares of SodaStream resulted in a realized profit of ILS 156,000. In these acts, the defendant made use of insider information by way of executing securities transactions while she had inside information originating from an insider.  For her actions, she was convicted of two offenses of using inside information from an insider.

Birnbaum's case (criminal case (Tel Aviv Economic) 61866-12-21 State of Israel v.  Birnbaum)

20. Birnbaum was convicted in accordance with his confession of one offense of use of insider information by an insider under Section 52C of the Securities Law. His confession came as part of a plea bargain in which a punitive agreement was reached, before the defendant's confession, and later in a mediation proceeding.  In Birnbaum's case, the court adopted the sentence agreed upon in the plea bargain and sentenced him, on October 23, 2023, to 60 days in prison.  This was in addition to 5 months of conditional imprisonment and a fine of ILS 50,000, which was determined at the discretion of the court (the amount of the fine took into account Birnbaum's declaration to make a donation of ILS 50,000).  As part of the plea bargain with Birnbaum, the indictment against him was even amended, which was originally a kind of mirror image of the original indictment against the defendant, and today there is a difference between the facts to which he confessed and those stated regarding his part in the indictment against the defendant.

Highlights of the report

21. The report dated August 8, 2024, detailed the defendant's background and the circumstances of her life. In order not to violate her privacy, its main points will be briefly detailed, but the rule detailed in it is included in my considerations.  The report reveals that the defendant coped throughout her life in the family framework.  It appears that despite this, the defendant managed to complete her studies, seminar studies, and bachelor's degree studies, and has been working as a technical support team manager for the past four years.  Letters of recommendation from her employers indicated her dedication, integrity, reliability and investment.  In addition, the defendant volunteered to assist the elderly and lone Holocaust survivors for several years.  About 4 years ago, following the death of two of her brothers, the family relationship was renewed, in which she cared for her father, who had recently passed away.
22. The report shows the treatment in which the defendant was integrated in the years 2017-2019 and the therapist's impression of her and her characteristics against the background of her life circumstances, which led her to act impulsively at times. It was noted that the defendant expressed a desire to investigate these parts of her personality in depth, in order to deal with her various difficulties in a progressive manner.
23. According to the defendant's statement to the Probation Service, against the background of the difficulty she experienced alongside the legal process in integrating the events in her family in recent years, she decided to seek treatment once again. The report of the treating psychologist revealed that the defendant began treatment about two years ago, but after a short period of time she chose to stop it.  In July 2024, she returned for treatment.  The treating psychologist's impression is that the defendant is not characterized by fraudulent or marginal patterns, is engaged in rehabilitation and advancement of her condition, and expresses a desire for long-term treatment.
24. According to the Probation Service, the defendant's experiences throughout her life led her to make the wrong choices in the background of the offenses. The impression is that the defendant acted fraudulently and manipulatively against the background of emotional distress, after a long period in which she experienced a sense of lack of control and exploitation, as a way to achieve an experience of control, security and financial gain, and that she had difficulty thinking about the consequences and severity of her actions.
25. The report noted that the defendant confessed to what was attributed to her, internalized the factors that led her to behave as she did, she regrets and is ashamed of her actions, she voluntarily participates in another therapeutic process and expresses motivation to continue to delve deeper into the treatment she needs. According to the Probation Service, the defendant is devoid of marginal patterns, and the therapeutic process is intended to help her acquire tools for proactive conduct in situations of stress and crisis, when the impression is of a need to continue the therapeutic process.  The report also noted the impression of the defendant's strengths, who, despite difficulties throughout her life and the lack of support factors, invested her resources in proper conduct in various frameworks, managed to maintain employment stability and achieved achievements in this field.
26. As risk factors, the Probation Service noted the severity of the offenses and the defendant's manipulative conduct over an extended period of time, taking advantage of her connections, as well as her tendency to act in a survival manner and the complexity of her family of origin. The defendant's lack of a criminal record, her ability and skills, her proper conduct in the employment sphere, the absence of marginal patterns, and the shame and remorse she felt for her actions, as well as the therapeutic process, were considered.  The Probation Service's recommendation is that the defendant be imposed, along with a probation order, which will allow monitoring of her progress in treatment, a 200-hour probation order, which will constitute an educational and concrete punishment that will reduce the risk of recurrence of offenses and promote her rehabilitation.
27. The Probation Service recommended that the defendant's request to overturn her conviction be positively considered. In the meantime, he noted that the defendant presented documents indicating that she might be fired from her job following the conviction, so that there could be a concrete impact on her livelihood.  This is in addition to the defendant's fear of damage to her self-image as a result of the conviction.  It was also noted that this was the first offense committed by the defendant, her remorse, her recognition of the severity of her actions, and her integration into a risk-reducing therapeutic process.

Evidence of Punishment