Ex-finance minister Kahlon convicted on securities-reporting charges in plea bargain

Defense and prosecution will jointly seek a suspended sentence and NIS 180,000 fine, after he failed to report missing checks amounting to NIS 10.6 million

Former finance minister Moshe Kahlon was convicted Sunday in a plea bargain on securities-reporting offenses related to his time as chairman of the Unet Credit company.

According to the indictment filed with the Tel Aviv District Court, Kahlon was informed of “substantive irregularities” in Unet’s Nazareth branch in 2022 but “did not act to fully inform the company’s board of directors of all the information as required by the securities law,” the State Attorney’s Office announced.

The problems at the Nazareth branch, where a substantial part of Unet’s operations were carried out, were presented to the board five months after Kahlon had been made aware of them, and the company then announced the issue to the public.

Shortly after Kahlon disclosed the irregularities to the board, he resigned from his position at Unet Credit.

Both the defense and the prosecution will jointly petition for a suspended sentence, a fine of NIS 180,000 ($64,000), and a restriction on being able to serve as an officer in a public company for 18 months.

Kahlon served as a Likud member of Knesset and minister for 10 years, and was credited with spearheading a popular program that deregulated the cellphone industry. He later formed the Kulanu party under his leadership and served as finance minister from 2015 to 2020. The plea deal does not prevent him from returning to politics.

Kahlon’s name has been linked in recent days to the formation of a new right-wing party of former Likud ministers.

Unet, a non-banking credit services company, which provided loans and other financial services for its clients, was traded on the Tel Aviv Stock Exchange until its shares were frozen in the wake of the investigations.

“The conviction sends a clear message,” the State Attorney’s Office said.

“The law protects the interests of investors, and says that violating duties toward them entails liability and punishment,” the statement added.

The State Attorney’s Office alleged that the company’s compliance officer, Yoav Tsabar, delayed reporting his findings regarding missing checks and “irregularities” to Kahlon until the beginning of 2022, and Kahlon subsequently instructed him not to disclose the findings to the board “due to concern of harming the company’s credit rating.”

According to the indictment, Kahlon instructed Tsabar “to take action on the matter and told him that he would assist him in whatever way was necessary.”

The indictment added that during a conversation on March 8, 2022, Kahlon asked Tsabar whether they should bring the matter to the board of directors. He later “instructed him not to rush with the report to the board of directors and to act cautiously,” and the two deliberated about when would be the best time to inform the board.

By April and May 2022, after failing to reduce the branch’s debts, Kahlon and Tzabar still hadn’t reported the information to the board or the public. Prosecutors allege that they discussed how best to bring up the issue at a board meeting at the end of May as an update, and only then would a legal opinion be requested.

On May 29, 2022, Sabar reported that after in-depth examinations, deficiencies of NIS 22 million were discovered at the Nazareth branch, of which approximately NIS 10 million was uncollectible.

An external auditor was then appointed, and the company later reported discrepancies of NIS 5 million to NIS 7.6 million. A later report said the value of checks whose whereabouts remained unknown totaled NIS 10.6 million.

According to the indictment, the company’s board of directors approved the 2021 financial statements without being informed of the missing funds from the Nazareth branch. Kahlon nevertheless signed the financial statements that were released to the public, without including the material details.