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I have been requested by Attorney Michael Kirsch to give my opinion on the judgment of the Tel Aviv District Court File No. P 040258/01 in respect of the convictions concerning offences of deceit and theft and to assess the prospects of an appeal against these convictions. To this end, I have read the relevant sections of the judgment and the relevant sections of the parties' closing arguments, and examined the legal situation. I have not referred to the other offences for which Mr. Israel Perry was convicted. I have not dealt with the interpretation of the agreements between the Organization and the clients in depth, since I am not an expert in contract laws. In most instances, within the framework of the penal law issues, I have adopted the interpretation of the agreements which is against the defendants. Firstly, reference is made to the judgment in general, followed by a discussion of the offences of deceit and theft for which the court opted to convict Mr. Israel Perry and the Organization for the Implementation of the Social Security Treaty (Israel-West Germany) (hereinafter: the "Organization"). I believe that the judgment contains severe defects, both in terms of the factual findings and in terms of the legal analysis. 1. The Court's treatment of the witnesses for the prosecution is most puzzling. The Court accepted the version of the Defense to the effect that significant contradictions were found in their testimonies and in respect of some of them, the Court further stated that their testimony was tendentious and hostile vis-à-vis Mr. Israel Perry. Nonetheless, the Court opted to rely on the implausible version of some of them, to the effect that they would have avoided contact with the Organization, had they known that Mr. Israel Perry controlled the lending companies. Such a statement on the part of a witness, being asked to relate to a hypothetical question and place it in the past times and in a totally different cognitive state of mind, while understanding the significance of his reply in terms of his own interests, can be considered trustworthy only when the credibility of the witness in question is absolutely impeccable, which cannot be said in respect of the witnesses for the Prosecution. In this context, further understanding is required in the case of those who do not feel a strong commitment to the agreement entered into by them, for whom a real gap can be created between their state of mind at the time of signing of the agreement, when they believed that they were being offered a golden opportunity, and their subsequent frame of mind, guided by a tendency to secure for themselves an improved position, contrary to the agreement. The Court failed to treat all the witnesses for the Prosecution as they should have been treated, namely, as having a significant interest to damage Mr. Israel Perry, seeking to make use of the Criminal Law, as part of an organized campaign, with a view to improving their position in the civil proceedings involving breach of the agreement with Mr. Israel Perry on their part, and as those being sued by Mr. Israel Perry in such proceedings. 2. The Court went beyond the requirements of the laws of evidence and the most basic rules in respect of conducting a trial and relied on what it interpreted as looks of hatred directed at Mr. Israel Perry by individuals who the Court estimated to be other clients present in the Courtroom, who were not called upon to testify (in practice, people who did not identify themselves to the Court). The Court also opted to attribute meaning to such looks, assuming what has to be proven, namely, that the looks of hatred were a reaction to their deception by Mr. Israel Perry. In appointing itself a mind-reader of persons who were not even witnesses at the trial, the Court made itself into a manufacturer of evidence against the Defendants, which in effect constituted no more than guesswork. 3. The Court failed to attribute any real weight to the twenty five witnesses for the Defense (a sample of some nine thousand clients of the Organization who required loans, most of whom complied with their obligations and did not join the campaign conducted against the defendants), whose testimonies were impeccable. These witnesses denied the version of the Prosecution and expressed complete satisfaction with their contractual relationship with the Organization. These testimonies carry a very considerable weight both in terms of the offences of both deceit and theft. These witnesses expressly denied the claim that they gave instructions with respect to funds that remained in the possession of the lending companies, particularly instructions with respect to payment of insurance premiums. 4. The Court attributed no significance to the Prosecution's omission to examine the witnesses, including its own witnesses, concerning their awareness of the insurance issue, without which they cannot be deemed to have deposited anything with the Organization. Instead of genuine evidence, here too the Court became a manufacturer of evidence and expert in the parties' minds, and the impact that the insurance had on them. See for instance p.10313: "Further words are unnecessary concerning the immense psychological impact inherent in the reference to the name of an insurance company". 5. The Court failed to make a distinction between earlier and later events, and based its findings - concerning both deceit and theft - about earlier events on later events. Moreover, the Court did not refrain from passing sweeping judgments rather than relying on the relevant facts on the basis of the elements of the offences attributed to the Defendants [pp.10189, 10209]. This was also the case when the Court determined that the rate of the grossed up insurance premiums was initially high, in a manner that can serve as a basis for a charge of theft (p.10335). 6. The Court refrained from basing its judgment on what should have served as a foundation data or "lighthouse data" in understanding the facts, as a necessary foundation for the legal analysis: A. The Organization's clients were all aware at the time of signing the agreements for obtaining credit, what the original pension they were eligible was, and what pension they would actually receive. In contrast, the witnesses for the Prosecution did not read the detailed agreements which they signed.
B. Whatever the exact status of the Organization vis-à-vis the clients, there can be no doubt that the Organization also acted for profit, and that the activity and risk that were involved in obtaining credit for the clients justified, from every aspect - legal, commercial and moral - remuneration and profit for the Organization. This fact also clearly transpired from the considerable gap between the original pension and the actual pension.
E. In the Representation Agreement, the Organization was authorized, inter alia, to invest on its own, namely - to act towards obtaining credit without any other lending entities whatsoever. Some of the witnesses for the Prosecution also failed to make any distinction between the Organization and the entity providing the credit, or believed the lending companies to be directly related to the Organization (pp 10184, 10189). This was also the version of the witnesses for the Defense (p 10204).
7. Both in analyzing the facts and in its legal analysis, the Court adopted a distinctly non-economic and non-commercial approach. This was reflected in its negative attitude to the concern of a lender (in this case, Mr. Israel Perry) that the borrowers would deny their obligations because of their wish to obtain better conditions than those agreed upon (namely, breach of the BGA agreements), which would require litigations in respect of the costs involved therein and the risk of a less-than-optimum legal outcome. Hence the Court's harsh judgment of the fact that Mr. Israel Perry concealed his control in the lending companies and in the "Britannia" insurance company. Thus, it was prepared to take into account only excess charges, while at the same time overlooking excess credit, as specified below. Thus, the Court ignored basic financial data, such as the business significance of advance payment of the insurance sums. Thus also in respect of its treatment of the damage element. Thus it determined that the insurance with "Britannia Ltd" was fictitious. Thus its determination that "advance charging reflects advance payment. Otherwise, what is the point of the charge?" (p 10309), or "Namely, clients undertook to pay money which they believed would be transferred to an insurance company. And if so, the Defendant pocketed profits which were the direct result of the clients' innocent belief that they were paying premiums for insurance" (p 10284). 8. The Court adopted the Prosecution's legal claims, while denying the Defense claims, without discussing them in depth, while misinterpreting the law, as demonstrated below. General Evaluation of the Judgment. The general impression is that the Court itself found it difficult to cope with the complexity of the agreements and also, and perhaps because of this, saw this as a reflection of unfairness on the part of the Organization; as stated, it found the business-economic aspects of the engagement difficult to understand, and found it difficult to adhere to the relevant facts required for the criminal charges, while being affected by external and irrelevant data, such as it view that the Organization benefited in the transaction from exaggerated profits, or that there was a misrepresentation in terms of the insurance which, in the absence of reliance thereon, does not constitute an offence of obtaining a benefit by deceit. This impression is significant both in order to understand the judgment and in terms of the task facing the Defense at the appeal stage. The Deceit Offences. The Court convicted Mr. Israel Perry and the Organization of obtaining by deceit the consent of the witnesses for the Prosecution to enter into the Representation Agreement with the Organization. The misrepresentation, according to the Court, was reflected by the representation of the status of the Organization as one that faithfully represents the clients, both in general, and vis-à-vis the lending companies, and also by failure to disclose the fact that Mr. Israel Perry was a controlling shareholder in the lending companies. For the purpose of evaluating the prospects in the appeal, reference is made first to the law in its present version, namely, according to the current interpretation of the Supreme Court. Subsequently, the option of causing a change in the existing interpretive position is discussed. The elements of the deceit offense, pursuant to the existing interpretation, are as follows: a misrepresentation that is perceived and believed by the victim, and causes him to give a benefit to the deceiver. Namely, a causal psychological relation (a reliance) should take place between the misrepresentation and the delivery of such benefit by the deceived party. In view of the foregoing in section 6.A and B above, I am of the opinion that the Court erred in respect of the misrepresentation regarding the exclusive loyalty of the Organization, vis-à-vis the customers, as negating its interests in making a profit. The Court further erred in treating as proven the element of the clients' reliance on the misrepresentation by omission - the failure to disclose to them the fact of Mr. Israel Perry's control of the lending companies, although some of the witnesses for the Prosecution testified to this. See the contents of Section 1 above. In general, a Court of Appeal does not intervene in factual findings established by the hearing Court; however, it appears to me that this case belongs to the exceptional cases where it is possible to convince the Court of Appeal that intervention in these findings is called for, taking account of what the Court itself said about the witnesses and about the special nature of the content and substance of their testimony, as explained above. Moreover, the Court made a basic and apparent error in the judgment - having ramifications on its legal discussion as well as on its factual analysis, when determining: "The examination should then focus, to whatever extent possible, on what they think, at present, about this information that was concealed from them at the time, and its significance for them, and no less on the basis of the logic behind things, taking account of the effect of such information on the considerations of the average client, who cannot always make a distinction between what he knew and believed then, and what he thinks about it at present" (p 10213). Obviously, the only critical and relevant point in time, in terms of such reliance, is the part time of the agreement, and not any subsequent point in time, and obviously it is not the state of mind of the average client that weighs this issue, but the state of mind of the deceived party at the time. True, the party to whom the representation was made finds it difficult to make a distinction between his state of mind on the relevant date (the date of entering into the contract) and his state of mind at the time of the testimony. The obvious conclusion from this - concerning the inability to rely on the version of reliance - was not inferred. It is also obvious that, in contrast to the position of the Court, the fact the relevant conduct was failure to disclose information does not render irrelevant the state of mind of the victims of the representation. A misrepresentation by omission must also be a cause that has a psychological impact on the conduct of the victim. The case law in Israel is known for its sweeping position, exceptional in terms of comparative law, concerning the offense of criminal deceit - both with respect to the nature of the offense - in terms of the value protected by it - which, pursuant to the case law is not property, and because there is no express requirement for proprietary damage caused to the victim. Neither did case law distinguish between false pretence in active conduct and false pretence in omission, although such a distinction is called for. This position of the case law has been criticized by legal scholars, and can be contested against before the Supreme Court, seeking that it changes its interpretation in these matters, which rests within its power. I am aware that the Court does not rush to change its interpretation; however, the legal arguments against the current interpretation are so strong that the existence of such a prospect cannot be denied. Should the interpretation be changed, arguments may be made both in respect of the absence of damage to the property of witnesses for the Prosecution and as to the absence of criminal significance of the said omission. It appears that the Court itself was aware of the weakness of a factual basis for conviction of fraud, and hence added to this matter something that is not at all relevant to the offense of fraud: the "entrapment" version, to the effect that the Organization entrapped clients in the loan transaction by demanding that they pay the fee to the lawyer upon receipt of the decision as to their eligibility for a pension. I do not believe that there is any substance in the entrapment version, which was raised by only two of the witnesses for the Prosecution. It is also clear that there is no connection between possible hardship suffered by the clients as a result of this demand, which they undertook in advance, and the misrepresentation and the offense of criminal deceit. This illustrates the Court's difficulty in adhering to the relevant data, apparently in view of the feeble nature thereof, and its tendency to attribute criminal liability to the Defendants for acts not connected to criminal offences. Theft Offences. General The charging and conviction of theft of Mr. Israel Perry and the Organization is an act of legal magic. How can theft be possible, particularly the type of theft relevant to our case, namely theft by a bailee, from some 9,000 "victims", while the Prosecution is unable to produce even one single witness to testify to this? As may be recalled, the Prosecution refrained from questioning the witnesses in respect of the insurance, and obviously the twenty-five witnesses for the Defense did not regard themselves as depositors whose deposits were stolen. The artificiality of the theft construction is also witnessed by the fact that the Prosecution itself changed its version with respect to the object of the theft at the stage of the closing arguments. It seems that in the absence of any ability to attribute a deceit offense to the Defendants, at least for want of reliance, the theft offense was selected as a substitute for the lack of deceit. However, it is not the purpose of the theft offense to be used as a net offense for catching those suspected of an act of deceit, the elements of which are not satisfied. For the purpose of conviction for theft, the Court employs statutory fictions designed to ensure that the fact of the bailee's being the owner of the deposited asset would not serve in all circumstances as a barrier to a theft offense by a bailee. However, the Court reaches even beyond the statutory fictions. The Court's approach implies the collapse of the essential distinction between breach of contract, including consequences thereof in civil law, and the criminal offense of theft by a bailee. Moreover, the extension of the theft offense beyond its simple classic format, on grounds related to changes characterizing modern economic life, requires that the conviction of theft be conditioned on proof of property damage to those purported to be its victims, a condition which was not satisfied in the present case. The Court's determination that "theft can be consolidated without having any physical contact with the asset, in other words, also without ‘seizing' the asset and even without moving it" (p 10238), without characterizing the behavioral element of the offense, shows an approach whereby the offense in question lacks any behavioral element. This is impossible in penal law. The Court opted to rely on the fictions in sections 387 and 388 of the Penal Law. However, the Court must have failed to see that they do not apply in the present case, even where one does not agree that the relationship between the Defendants and the clients was merely a debtor-creditor one. Pursuant to section 387, the victim of the offense is the insurance companies, not the clients. Section 388 contemplates a party that has received an asset with a view to selling or otherwise handling it, and later paying the consideration for the asset to the party giving the asset or to another, or delivering to either of the aforementioned a substitute for the asset, or issuing an invoice in respect thereof. This is not the case here. The Court repeatedly referred to interpretive developments in the case law which occurred after the acts of which the Defendants were convicted, but altogether failed to examine the question of whether it is reasonable to expect them to foresees the future and see themselves cautioned under an interpretation of the law which has not yet come to being. Below is a separate reference to the two loan agreements in respect of which the Defendants were convicted of acts of theft, in connection with the loan insurance. The Loan Agreement with BGA. The Court convicted the Defendants of theft with respect to charging the borrowers a premium that was grossed up in advance, on the basis of its determination that the lending company did not pay - neither in advance nor at all - any funds to an external insurance company. The court defined the transaction with "Britannia" as fictitious. First of all, it should be clarified that the express provision in the agreement to the effect that the debt is wiped out upon the demise of the borrower denies the element of damage. The relationship between the parties is clearly that of lender-borrower, and not of bailor-bailee. The borrower's charge for the grossed-up premium is not a deposit made for a specific purpose (it was assimilated and merged with the borrower's total debt, and it could not be known that it ever existed as a separate unit). It is the lender's rather than the borrower's asset, and in any case, not a "thing" that the lender can steal. The comparison made by the Court between a charge and information is groundless in all respects. There is no real reason to deem the transaction with "Britannia" a fiction. The determination that the lending company had to pay in advance a premium that was grossed up in advance is contrary to elementary business logic, and should not have been made. The Court's distinction between the actual separation of borrowers from ownership of their funds that took place, and their theoretical separation from them (p 10329), which, according to the Court, did not take place - is unconvincing. The legal analysis in the judgment contains no reference to the central issue of the essential distinction between breach of contract and the theft offense. The Loan Agreement with BGF. The Court convicted the Defendants of theft on three issues: 1. On the basis of the difference between five thousandths, which is the rate of the monthly charge pursuant to the payment schedule, and a lower monthly premium (as was the case for the borrowers' premium up to the age of 74); 2. For specific borrowers for whom the Defendants failed to pay insurance; 3. With respect of all borrowers during the period in which the insurance premium was paid to the "Britannia" insurance company, since the agreement referred to another insurance company, and since, according to the Court, the fact of Mr. Israel Perry's control in "Britannia" rendered insurance with that company fictitious. Concerning 1: No theft offense occurs in this context, since the borrowers agreed to the payment schedule, and since it contradicts any financial logic, common sense or fairness requirements - to take into account, to the Defendant's detriment, the difference which is in their favor, and to ignore the differences which are disadvantageous to them - from the age of 74, the borrower paid a premium higher than five thousandths. The Court also overlooked the fact that at the intermediate stage between obtaining the loan and receipt of the first pension, the lending company paid insurance without receiving anything from the borrower. The legal structure constructed by the Court (to the effect that the subject is actual collection as opposed to a mere charge) cannot be upheld, since the loan was given to the borrowers before they commenced receiving the pension. Clearly, up to the receipt of the pension, there could not have been any actual collection, but only charging, and the structure of the transaction is uniform with respect to the entire period, from the outset. Accordingly, what necessarily took place at the beginning of the period (charging only) is also true in respect of the entire period. Concerning 2 and 3: No damage was caused to the borrowers since, as aforesaid, pursuant to the agreement, in the event of death, the debt is deemed to be settled. The Court determined that the fact that the Social Security Institute of West Germany and the BHF, the German bank that undertook to provide credit, were aware that some of the borrowers had been removed from the insurance, and considered the lender's undertaking to deem the debt as settled, to be a good arrangement - is irrelevant. This determination is puzzling and unconvincing. The difference between the "Britannia" insurance company and the insurance companies preceding it is immaterial and there is no good reason to treat the insurance with "Britannia" as fictitious, not to mention the fact that the insurance terms remained as they were with the previous companies, one of which, Hassneh, collapsed. Moreover, "Britannia" had re-insurance for loans with a recognized company - Cologne-Re, which bore the lion's share of the risk. Along more general lines, this relationship is one of lender-borrower, rather than depositor-depositee. The borrower assigned, by means of absolute assignment, the future pension flow to BGF, which in turn assigned the future flow to the BHF Bank. No special purpose deposit occurred, but only a contractual obligation to transfer funds to the insurance company. My overall conclusion, in view of the foregoing, is that from a purely legal perspective, an appeal has good prospects, in terms of both the conviction of fraud and the convictions of theft.
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