Client updates /  Securities

After considering public comments, the Israel Securities Authority is promulgating a revised draft bill seeking to regulate the field of digital assets.

The Israel Securities Authority recently established guidelines on when a cryptographic currency (token) is considered a security. The ISA determined that Kirobo tokens meet the definition of a security. This is primarily because the The Israel Securities believes investors would intend to purchase the tokens for financial purposes. In addition, these investors would anticipate their holdings to go up in value.

The Israel Securities Authority recently published a staff position on situations it believes indicate fraudulent securities trading and which justify opening a criminal investigation.

The Israeli Securities Authority has announced that distribution entities now may be liable for the contents of a prospectus. In a staff position paper published in late July, the ISA changed the rules of the game in the underwriting field by determining that a distributor, or an entity associated with a distributor, that purchases securities during an issuance and sells them within a short period of time (six months or less) shall be viewed by the ISA as an underwriter and shall be liable for the prospectus.

It is not uncommon for Israeli incorporated companies to seek investments abroad. In many cases, such investments are done through public offerings on international stock exchanges. Securities issued by Israeli companies are traded on the NASDAQ, the London Stock Exchange and a variety of other exchanges, including Australia. These situations, which make perfect sense from a business perspective, give rise to interesting and sometimes quite complex legal issues.

The Tel Aviv District Court recently issued a decision clarifying that a public offer in Israel of securities of a foreign company is subject to the provisions of the Israel Securities Law, even where the investment agreement stipulates that it will be subject to a non-Israeli law and dispute resolution jurisdiction.
 
In the case at issue, a Cayman Island entity raised from a group of more than 100 Israeli investors about USD 10 million to be used for the construction of a hotel in Thailand. The investment agreement included a provision applying Thai laws and specifying Thailand as the exclusive dispute resolution venue.
 
Subsequently, certain of the investors filed a lawsuit claiming that the securities had been sold in violation of the Israeli Securities Law, which prescribes, inter alia, that “no person shall offer securities to the public other than pursuant to a prospectus, the publication of which has been authorized by the Israeli Securities Authority”.
 
The defendants, on their part, filed a motion to dismiss the lawsuit in limine and a motion to hold a hearing on the Thai jurisdiction stipulated in the agreement.
 
In its decision the court rejected the motion to dismiss the claim and ruled that the relevant provisions of the Israeli Securities Law are not discretionary, and that a foreign law and jurisdiction provision in an agreement is not legally binding if it relates to a dispute relating to laws designed to protect the public in Israel.