Israel Securities Authority issues report summarizing its findings regarding offerings of securities without a prospectus

The Israel Securities Authority (ISA) recently published a report summarizing its findings regarding offerings of securities without a prospectus. The report is intended for entities planning to offer securities to the public and presents the ISA’s position regarding the criteria for various exemptions enabling entities to offer securities without a prospectus.

The report primarily addresses investment ventures that offered securities to the public in violation of the provisions of Section 15A of the Securities Law, but its conclusions are relevant to all offerors.

Highlights of the report

• Documentation and registration of offerees 

Offerors must accurately document the offerees that received investment offers. Such documentation will enable real-time verification of the offeror’s compliance with provisions of the law, which prescribes a limit of 35 offerees over 12 consecutive months.

Attempting to reconstruct the list of offerees retrospectively, such as based on meeting calendars or correspondence, could be incomplete and inaccurate, and does not ensure compliance with provisions of the law.

• Provision of information and benchmark data

The provision of benchmark data to potential investors for the purpose of illustrating the profit potential of a proposed investment does not meet the exception of “general information” prescribed in the law. Accordingly, the provision of financial information to potential investors, including the presentation of expected returns and comparative data from similar projects or expected returns based on data external to the venture, does not constitute “general information” permitted under the law, is not covered by the exemption and requires offerors to classify any interested party who received details of the offering as an “offeree”.

The ISA clarified that providing financial information to potential investors, while presenting expected returns and comparative data from similar projects, is tantamount to an offering and obligates the offeror to count the potential investors among the “offerees”.

• Documentation of qualifying investors

Classifying potential investors as qualifying investors requires the investors’ written consent before any purchase. The aforementioned consent must relate to the fulfillment of the conditions listed in the First Addendum to the Securities Law, and the investors’ awareness and consent to the significance of this classification.

• Activities through marketeers

The ISA clarified that external marketeers are considered an “extension” of the offering company. Therefore, any offering by an external marketeer is counted as one of the company’s offers in connection with that same investment offer.

In its report, the ISA emphasized the need for companies to strengthen their oversight and control mechanisms over marketeers’ activities, including external marketeers, in order to ensure full compliance with provisions of the law and the company’s internal procedures.

Guidelines for companies intending to offer securities to the public

• Companies offering securities should adopt orderly work procedures, which will be binding on their employees and on their external marketeers (and should ensure that external marketeers implement those procedures). Furthermore, they should conduct ongoing controls over securities being offered by their employees and external marketeers to ensure that there are no deviations from provisions of the law. 
• The ISA obligates companies to ensure that every investment offer to potential investors is fully and accurately documented.
• Marketeers must keep records of offerees, and companies are obligated to monitor and control all of their marketeers, in order to ensure that the total number of offers to unclassified offerees not exceed 35 offerees.
• The existence of orderly documentation and control mechanisms may serve as evidence that a company and its management have taken all reasonable measures to prevent violations, thereby establishing a defence against liability in respect of corporate offenses.

To view the ISA’s full report of its findings, press here.

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Adv. Andrey Yanai is a partner and Adv. Avihai Tal is an associate in the firm’s regulations department.

Barnea Jaffa Lande’s regulation department is one of the leaders in its field in Israel and provides comprehensive advice on a variety of regulatory aspects to various sectors, including to local and international corporations, investment funds, financial institutions, technology companies and industrial companies.