Investigators Raid Bezeq offices In Probe Into Securities Law Violations

The shares of Bezeq, the nation’s largest telecommunications operator, declined in Tel Aviv on Tuesday after investigators raided its offices and pulled in its controlling shareholder for questioning.

Trading had been halted earlier in the day for Bezeq and its holding companies, B Communications and Internet Gold-Golden Lines Ltd., following an investigation into the company by the Israel Securities Authority (ISA), according to a filing to the Tel Aviv Stock Exchange.

The companies said they had been notified by the Securities Authority about the start of an “open investigation into the matters of Bezeq,” but provided no further details. In an additional filing later, Bezeq said investigators were searching its offices as part of the probe.

“The ISA has informed the company that the investigation deals with suspicions of violations of the securities law and the penal code relating to transactions connected to the controlling shareholder. At this stage the company has no further information regarding the nature and circumstances of the investigation.”

Israeli businessman Shaul Elovitz, the controlling shareholder and chairman of Bezeq via the two holding companies, and other senior managers were reportedly being questioned by the ISA in Tel Aviv.

The Israel Securities Authority confirmed the investigation. It did not specify what irregularities were being looked at, but noted that until now the investigation into the company had been undercover.

Speaking at a business conference in Jerusalem on Tuesday, Shmuel Hauser, the chairman of the ISA, said the investigation related to the dealings of Bezeq’s controlling shareholder.

“The open investigation has only now started so of course I cannot say anything about it,” he said. “Our approach is to ease regulation where we can, and enforce law uncompromisingly where it is needed,” he continued. “On this matter I want to say that I am perturbed and disappointed by those cases in which controlling shareholders forget that in public companies the shareholders are their partners.”

The Calcalist financial website said investigators had also raided the offices of Bezeq’s Yes satellite unit.

A spokesman for Bezeq could not be reached by phone.

At the center of the probe is the NIS 680 million ($193 million) cash acquisition of Yes shares by Bezeq from Elovitz in 2015, Calcalist reported, a deal that was opposed by many of Bezeq’s institutional investors.

After Elovitz acquired control of Bezeq in 2010, the ISA required him to sell his holdings in Yes, which he had founded, to a third party. Elovitz, however, did not sell his stake in Yes and reached an agreement with the ISA that allowed him to merge Yes and Bezeq, through Bezeq’s acquisition of Yes shares.

The merger deal also got the go-ahead in 2015 from then-acting communications minister, Prime Minister Benjamin Netanyahu. Elovitz is a personal friend of Netanyahu, and the prime minister was later ordered to refrain from dealing with matters relating to companies controlled by Elovitz to avoid a conflict of interest.

Bezeq shares were trading 4.3 percent lower at 2:36 p.m. in Tel Aviv.

“You never know what these kind of investigations will reveal,” Saar Golan, a sales trader at the Tel Aviv-based Bank of Jerusalem, said by phone. “Buyers will wait on the sidelines for further clarification, while existing shareholders may trim positions.”

Bezeq, the nation’s largest fixed-line provider, dominates the local communications market and has in recent months been pushing for regulatory permission to merge its mobile, fixed-line, satellite TV and internet subsidiaries, which currently operate as as separate business entities as required by the regulator.

Bezeq shares have declined 15 percent so far this year, compared with a 2.4 percent drop of the benchmark TA-35 blue-chip index, as investors have tired of waiting for the regulatory approvals that could pave the way for the unit mergers, saving the company millions of dollars, Bloomberg reported earlier this month.

Since privatization, Bezeq has lost over a million telephony customers to its competitors and its market share has dropped to around 50 percent. Revenues have dropped by almost a billion shekels in the past six years as consumers shifted to cellular phones.

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