Findings From ISA Audits in Relation to Private Placements

The Israel Securities Authority (the “ISA“) published a report detailing its findings in relation to Private Placement of Securities and Funds in Israel (the “Report“). The following summarizes the ISA’s principal findings and their practical implications for the day-to-day operations of entities involved in fundraising: Classification and Registration of Offerees

1. The ISA clarified that anyone exposed to the details of the offer or related financial data – regardless of format or source – is considered an “offeree.”
2. In order to classify investors as “Sophisticated Investors”, their written consent which acknowledges the implications of this status should be obtained (which reflects a stricter interpretation than before).
3. The ISA emphasized that tracking retail offerees must be done in real time, as reconstructing records retroactively is unreliable for legal compliance.

 Exposing Investors to Data The ISA clarifies that even objective and public data, may be considered an offer. Accordingly, investors exposed to such information are considered “offerees” and should either be classified in advance as “Sophisticated Investors”, or deducted from the permitted annual quota of 35 retail offerees. Supervising Third Parties The ISA emphasizes the need to supervise external distributors and other third parties to ensure full compliance with public offering restrictions. Practical Implications:

• The ISA emphasizes the need to adopt structured work protocols/ procedures – binding both the employees of the fundraising entity and its external associates – and to monitor and supervise their compliance therewith.
• The Report stresses that the existence of systematic documentation and control mechanisms may serve as evidence that the company and its management took all reasonable measures to prevent regulatory violations. This, in turn, may constitute a defense against liability for both the company and its management. Conversely, the absence of such documentation and control mechanisms may lead to the imposition of liability on both the company and its management.

  To view the complete findings report published by the ISA – click here.   Our firm has unique expertise and extensive experience in matters relating to private capital raising, including the drafting of internal procedures, advising on engagements with external marketers, and representing clients before the ISA. We remain at your disposal for consultation and guidance on any matter related to this subject.