Section 15 of the Securities Law provides that securities may be offered or sold to the public in Israel only under a prospectus approved for publication by the Israel Securities Authority (ISA). The marketing of foreign funds to Israeli investors is considered an offering of securities and may therefore be carried out without a prospectus only if a recognized exemption applies.
The marketing of foreign funds generally relies on three exemptions:
- An offering to investors listed in the First Addendum to the Securities Law (Qualified Investors), which includes supervised entities, corporations with equity exceeding ILS 50 million, and individuals who pass asset or income tests. Reliance on this exemption requires the receipt of a declaration from the investor prior to the offer and verification of its fulfillment of the criteria by means of documented supporting evidence.
- An offering to a maximum of 35 offerees during a period of 12 months, not including classified investors. However, offerees that did not ultimately accept the offer and invest are still among those counted.
- A general publication of an intent to sell securities, without financial data or concrete details of the offering.
It is important to note the material nuances. Each exemption is subject to detailed ISA staff guidance, position papers, and relevant case law. For example, sending interested parties information on expected returns or benchmark performance may cause the offeror or marketer to lose the benefit of the general publication exemption and may result in each recipient being counted for purposes of the 35-offeree limit.
Marketers Are Considered an “Extension” of the Offeror
In a report summarizing its findings on securities offerings made without a prospectus, the ISA clarified that external marketers are considered an “extension” of the offeror. Accordingly, any offer made by an external marketer is attributed to the offeror itself, and the maximum number of offerees is counted across all parties acting on the offeror’s behalf. The offeror must therefore adopt clear procedures, keep full and accurate records of every interaction with potential investors, and maintain ongoing controls over marketers’ activities so that compliance with the statutory limits can be verified in real time. Attempting to recreate the list of offerees after the fact is not enough to demonstrate compliance with the law.
Potential Application of the Supervision of Investment Advice, Investment Marketing and Portfolio Management Law and Other Laws
The marketing of foreign funds may amount to “investment marketing” or “investment advice” under the Advice Law, because it defines a fund registered outside of Israel as a “financial asset.” ISA staff has also clarified that entities playing a significant role in the process, including by recruiting offerees and generating interest in an investment, may be viewed as participating in the provision of a regulated service and may therefore require a license or to qualify under one of the Advice Law’s relevant exemptions. In addition, the Joint Investment Trust Law may apply, imposing its own limits on contacting investors and on the maximum number of investors, based on criteria that differ from those under the Securities Law. As a result, the marketing of foreign funds may be subject to several laws concurrently, each with its own requirements and conditions.
Summary
Offering foreign funds in Israel is possible and legitimate, but it requires careful planning of the offering structure, strict compliance with the relevant exemption, proper investor classification and verification procedures, full documentation of contacts with potential offerees, and effective oversight of marketers and referral sources. We therefore recommend that any entity offering, or considering offering, foreign funds to investors in Israel review the structure of its activities at the earliest possible stage, including under the Securities Law, the Advice Law, and the Joint Investment Trust Law.