1. Enforcement at the Israel Securities Authority: from Criminal to Administrative Dr. Zvi Gabbay, Adv.

2. 14 Criminal Investigations commenced 13 Investigation Files transferred to DA 14 Indictments Filed (19 Files TBD) 11 Court Judgments (7 Trial-Court Verdicts; 4 Appellate Decisions) Israel Securities Authority (ISA) – Enforcement Statistics Based on the ISA 2009 Annual Report

3. Enforcement Tools Traditional Enforcement Criminal Enforcement – Commencing investigations and filing indictments Administrative Fines – with respect to certain “technical violations” License Revocation – withdrawing a firm’s authorization, prohibiting operation in financial services, preventing individuals and firms from performing regulated activities. Alternative Enforcement Internal Investigations and applying high corporate governance standards Voluntary disclosure to public and the ISA Unofficial Warnings

4. Enforcement Challenges Efficacy limitations of the justice system Complexity of securities and financial market issues Length, costs and consequences of judicial proceedings Lack of effective and appropriate alternatives Administrative fines apply only to a narrow and limited type of violations Lack of sufficient human resources

5. Selective Use of Criminal Proceedings Many Securities-related violations go unanswered Limited effectiveness of private enforcement Risk of damaging public faith in financial market Internal Costs – intelligence, investigation, prosecution, judicial resources External Costs - defense costs, reputation damage, personal price

6. Israel Securities Authority Enforcement Improvement Law (2011) Declared goals: Increase enforcement and enhance deterrence Reduce the time gap between violation and sanction Match the severity of the violation to the egregiousness of the offense Use criminal proceedings only in appropriate and distinctive cases

7. Israel Securities Authority Enforcement Improvement Law (2011) New reality post-ammendment - the law provides three types of enforcement actions: Criminal Proceedings Expanded Administrative Enforcement – an Administrative Tribunal will be authorized to render a variety of sanctions Administrative Fines

8. Fines to be imposed on individuals, not only on corporations (up to 20% of maximum fine possible for companies) Codifying procedure Right to hearing Alleged violator to respond within 30 days Limitation periods Discretion to reduce fine

9. Administrative Enforcement Tribunal Comprised of experienced legal professionals and financial market professionals Tribunal will sit in panels of three, chaired by an appointed ISA staff member All non-ISA members will be appointed by the Minister of Justice

10. Characteristics of the Expanded Administrative Enforcement Administrative enforcement precludes criminal proceedings or administrative fines based on the same matter A non-adversarial proceeding, generally based on documentation Evidence rules do not apply; the tribunal will determine its own procedures. Tribunal will not be authorized to make factual determinations regarding willful intent; it is restricted to negligence at the most. Tribunal decisions will contain detailed reasoning and will be published on the ISA website.

11. Characteristics of the Expanded Administrative Enforcement – con’t Confidential proceeding Enhanced judicial review Limitation periods: a)Severe violations – 7 years from time of conduct b)Intermediate violations – 5 years from time of conduct c)Lesser violations – similar to Administrative Fine – 3 years from time of conduct or 1 year from time ISA became aware of conduct Exceptions: disgorgement – always 7 years; revoking license / permit – no SOL. Indirect responsibility for any corporate wrongdoing – only on CEO, not board members.

12. Expanded Administrative Enforcement - Sanctions 1.Monetary fines 2.Compensatory disgorgement 3.Order to remediate and implement preventive measures 4.D&O Bar 5.License revocation 6.Suspended sanctions

13. Settled Remedial Orders ISA Chairman, with administrative tribunal approval, may enter into an agreement with violator imposing sanctions on violator. A Settled Remedial Order replaces previous or future enforcement actions based on the same matter. Violator’s consent, including any evidence submitted in the course of negotiating the settlement, is inadmissible in criminal or administrative proceedings against him, based on the same matter. Note: inadmissibility does not apply to civil proceedings. Settled Remedial Orders will be posted on ISA website. District Attorney will be authorized to enter into such an agreement in criminal cases.

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