TEL AVIV (Dec. 28)
In a precedent-setting ruling, the Jerusalem District Court has fined 10 former directors of the North American Bank approximately $144 million for irregularities that occurred before the bank went broke in 1985.
The fine, which includes accrued interest and inflation-adjusted charges from when the state first filed a lawsuit against the bank in 1989, is to be paid by the 10 directors according to the number of shares each held in the bank.
Monday’s decision was regarded as setting a precedent in that it made a corporation’s board of directors fully responsible for company activities.
In its ruling, the court stated that the board was fully responsible for any irregularities, embezzlement and corruption that took place at the bank from 1978 to 1985.
In 1985, four senior bank officials were convicted and sentenced to jail on criminal charges of embezzlement in a lawsuit filed by the state. The four were Jehoshua Halperin, board chairman; Shmuel Barzel, the bank’s legal adviser; Moshe Stern, Jerusalem branch manager; and Hadassa Monasa, assistant managing director.
The board members upon whom the penalty was imposed are Joseph Nakash, David Gaon, Dan Barzilai, Norman Allen, Israel Ben-Nun, Gedalia Buchbinder, Irwin Zussman, Yoel Herzog, Ya’acov Horowitz and the estate of the late David Tzafrir.
Most of the 10 are from the United States.
At the conclusion of the 1985 trial, the bank’s receiver, while breaking up North American Bank, decided to file charges against the board, demanding that its members return the money the bank had lost.
In his ruling, Jerusalem District Court Judge Ya’acov Bazak said the board was negligent in not dealing with the irregularities, that it failed to oversee management’s actions and that board members behaved as though they considered the post strictly honorary.
Most members did not attend board meetings, and those who did failed to show enough concern for what was taking place at the bank, Bazak said.
Attorney Yosef Segev, who represented the official receiver in the trial, was awarded costs of some $14 million, said to be among the highest court fees ever imposed in a trial here.
The directors indicated they would appeal the decision.
Legal experts said the ruling would probably dissuade many potential investors from accepting seats on the boards of major Israeli companies, as board membership had previously been regarded as a largely honorary position that did not entail personal responsibility for a company’s financial mishaps.