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or those who regularly
watch the evening news,
the sight of disgruntled
shareholders waving signs
and shouting angry slogans
across the street from the Tel
Aviv Stock Exchange is not un=
familiar. And until very recent-
ly, taking to the streets was just
about all the small-scale investor
could do when he believed he was
being treated unfairly by the com-
pany he had invested in.
In 1988 the country's securi-
ties laws were revised, allowing
a disgruntled small investor to
file suit against the company.
A claim by a small investor —
one without access to a team of
corporate lawyers — could be
made financially feasible if the
court were to recognize it as a
class action suit, thereby allow-
ing his attorney to represent a
group of disgruntled investors.
The first attempt to get a suit
recognized as class action came
in 1991. It and 20 other class-ac-
tion claims that followed were re-
jected by the courts. That all
changed recently when a court
recognized a lawsuit as a class ac-
tion for the first time in Israel.
The action is aimed at a com-
pany named Five J Jewelers
(Hamisha Yud), its controlling
shareholders, managers and oth-
er directors. The basis of the suit
is an accounting error that oc-
curred at the end of the second
quarter of 1993. In the company's
second quarter reports, the val-
ue of the company's assets was
overstated by NIS 595,000 and
its profits were similarly misrep-
resented by NIS 562,000.
The plaintiffs contend they
were damaged not only by the
fact that an error was made, but
by the way the error was handled
by the company's management
and controlling shareholders. In-
stead of exposing the accounting
mistake immediately after it was
discovered, they allege, company
management made a decision to
conceal the error until several
months later, when third quar-
ter results were announced — a
delay they allege violated securi-
ties law. When those results were
announced, the value of the
shares plummeted.
The plaintiffs — the Global in-
vestment firm and two of its key
investors together — purchased
NIS 30,000 in stock and options
in the company during the third
quarter. They are demanding the
difference between the price at
which they purchased the shares,
and what they estimate those
shares were actually worth. The

class action sought to represent
every person who purchased
stock in the company between
August 9, 1993, and November
28, 1993. The plaintiffs estimate
the total damage to all of the
shareholders at NIS 10 million.
Herzl Caspi, the attorney who
filed the suit for Global, has fo-
cused much of his recent practice
in recent years to awakening the
class-action tool in securities law.
Mr. Caspi believes that class
action is the only way investors
in Israeli companies will ever be
able to guarantee that a compa-
ny's managers and majority
shareholders will take their in-
terests into account.
Agencies like the Securities
Authority and the management
of the Stock Exchange, he says,
can only go so far. They can de-
mand that companies adhere to
certain regulations. But they do
not always have the authority,
the resources, or the motivation
to go after every company which,
when balancing what is best for
management and private share-
holders, tilts in its own favor.
It hasn't been a completely
smooth road for the new law or
for Mr. Caspi. Since the first case
in 1991, four attempts at class ac-
tion were settled out of court and
two were rejected by Tel Aviv Dis-
trict Court Judge Elihu Wino-
grad, the same judge who
recognized the class action. Both
are being appealed to higher
courts.
The nature of Mr. Winograd's
early rejections prevented lot of
plaintiffs from filing. Mr.ino-
grad ruled that in order to ascer-
tain the motivation of the
plaintiff, he would have to give
records of all stock-market activ-
ity for the past three years, a rev-
elation few are willing to make.
Judge Talgam, also sitting in the
Tel Aviv District Court, has re-
cently ruled, though, that in-
vestors seeking to file a class
action do not need to reveal all
this inforthation.
Also, the issue of finding a par-
ty willing to be a plaintiff in a
class action is problematic in any
country. "You have to find a spe-
cial person who is ready to go to
court and sue not only for his in-
terest but for the interest of the
public. Because the damage that
one person can have can be a few
thousands of shekels, the cost and
the time he has to invest in such
a case is enormous. So why would
most people do it?" says Mr.
Caspi.
It is no secret that interested
attorneys take an active role in

