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First enforcement settlement approved in an administrative proceeding initiated by the ISA against a trading platform


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November 16, 2016

The Administrative Enforcement Committee approved an enforcement settlement between the ISA and D.G.I. Media Ltd and its CEO and controlling owner, which imposes a total of NIS 500,000 in fines and a prohibition on the CEO and controlling owner on holding any office in the company.

Yesterday, on November 15, 2016, the Administrative Enforcement Committee, headed by the Honorable Zeev Hammer (Ret.) and members of the Panel, Attorney (and CPA) Eyal Neiger and Attorney Ronny Talmor, approved an administrative enforcement settlement that was submitted to the committee, between the ISA on one hand, and D.G.I. Media Ltd and its CEO on the other hand.

Under the settlement, the respondents admitted that the company continued to operate a trading platform without a license after Amendment 42 of the Securities Law 5728-1968 and the Securities Regulations (Trading Platforms to its Own Account) 5775-2014 came into effect, applying a regulatory regime to trading platforms. In the settlement, the respondents admitted to all the facts and the commission of the violation, and agreed to assume the following means of enforcement.

The settlement included imposition of a monetary fine of NIS 500,000: a fine of NIS 200,000 was imposed on the company and an additional fine of NIS 300,000 was imposed on the company’s CEO and controlling shareholder Mr. Gabriel Lavie. Mr. Lavie also received an additional NIS 300,000 conditional fine and was prohibited from serving in any senior office in a supervised entity for two years.

The administrative inquiry was conducted by the ISA’s Investigations, Intelligence, and Market Surveillance Department, and the administrative settlement was signed after the ISA’s Administrative Enforcement Department filed charges and opened an administrative enforcement proceeding against the respondents, before the Panel of the Administrative Enforcement Committee. Attorneys Ilana Moda’i and Orit Schreiber represented the ISA in the negotiations that led to the settlement.

The facts in brief

From February 21, 2014 to February 11, 2016, at least, the company in question operated a trading platform for binary options. Since commencing its operations as a trading platform, the company had 700 customers, performed an average of 450 transactions a day, with a monthly trading volume of USD 2.5 million. The company’s shareholder is a company wholly owned by Mr. Lavie, who served as the company’s sole director and CEO.

On May 26, 2015 (“the Application Date”), Amendment 42 of the Securities Law and the Trading Platforms Regulations came into effect, under which all trading platform operators must have a license. The Regulations provided a transition rule, according to which any company that files an application for a trading platform license before the Application Date may continue to operate a tradition platform after that date, as long as the ISA has not yet issued a decision on the license application. The company in question failed to file an application for a license before the Application Date and therefore did not meet the conditions of the transition rule. However, the company in question continued to operate a trading platform for 8 months, after the Application Date and during the administrative inquiry, generating significant profit.

The company and its controlling shareholder were aware of the requirements of the Law and the transition rule, yet filed an application only on January 14, 2016. The company was informed that even though it had filed an application, it was prohibited from operating a trading platform until its application was approved, if approved.

The decision of the Administrative Enforcement Committee

The administrative enforcement panel approved the settlement and determined that the enforcement measures imposed by the settlement are commensurate and reasonable, and also contain an element of deterrence. The Panel accepted the ISA’s argument that operating a trading platform without a license calls for a severe response, due to the risks to investors. Additional considerations that support the severe terms of the settlement included the fact that the violation was committed with full awareness and over a relatively extended period, and the amount of profits that the respondents generated as a result of the violation. Against these considerations, the ISA took into account extenuating circumstances, such as the fact that the respondents admitted to the violations at an early stage of the proceeding, allowing saving of resources; they returned the funds that their clients had deposited with them; and this is the first enforcement proceeding in this new area. As a result it was decided not to impose a more severe punishment on the respondents.

The Panel chair, the Honorable Judge (Ret.) Zeev Hammer, noted that he carefully considered imposition of a prohibition on serving in an senior position for two years, in view of the potential harm to the freedom of occupation, and the accompanying financial loss. He concluded that the restriction was both reasonable and commensurate with the circumstances, especially in view of the fact that the respondent persisted in the commission of the violation despite clarifications he received from the ISA and during the administrative inquiry. Another issue that the Panel chair addressed was the gap between the financial penalty and the high profits that the respondents’ generated from the violation. The Panel chair accepted the ISA’s explanations about its considerations to balance the enforcement means by imposing a smaller fine and a longer prohibition period. Even if the Panel believes that the balance between the two types of penalties should be different, the balance devised by the ISA is reasonable, and certainly does not constitute an irregularity that requires the committee to intervene in a settlement based on the respondent’s full admission, where the respondent was represented by an attorney specializing in this field. Attorney (CPA) Eyal Neiger also accepted the argument that a represented party may assume means of enforcement that reflect his assessment and his risks and financial limitations, and as a result he may prefer a more stringent sanction that restricts his occupation in order to reduce the financial sanction imposed on him — provided that the enforcement measures in total are within reason.

The Panel chair determined that the respondents’ violation is not a technical violation caused by a delay in filing an application for a license, because the preparation of an application for a trading platform license entails extensive investment of resources to create the infrastructure of financial, legal, technological, accounting, and administrative systems. Therefore, permitting continued operations of a trading platform is justified only after the company prepares all the necessary systems and infrastructure. Panel member Attorney (CPA) Eyal Neiger stated that the gravity of the violation stems from the fact that the respondents ignored the application of the Law and the Regulations and the regulatory regime, in contrast to the other companies that filed an application for a license in a timely manner; By doing so, the respondents failed to comply with a series of requirements designed to protect investors and facilitate the ISA’s supervision over their operations.

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