Israeli Central Bank Is Sued In N.Y. over Bank Failure
Two U.S. investors in a failed Israeli bank have filed a $54 million lawsuit in a New York court against Israel's central bank after they were sued for $250 million in Israel by the failed bank's receiver.
The suit against Bank of Israel in U.S. District Court contends that the central bank deliberately covered up irregularities and embezzlement at North American Bank, misleading investors as to the financial condition of the bank.
The central bank is also accused of arranging a secret $10 million loan through the New York branch of another Israeli bank, Bank Hapoalim, to artificially increase North American's share price.
North American, a small bank with headquarters in Tel Aviv and four branches in other Israeli cities and towns, was seized in January 1988 after regulators discovered massive irregularities dating to 1983.
Three Officers Convicted
Three of the bank's officers have since been convicted of stealing more than $60 million by diverting North American's funds into other companies, granting insider loans without adequate collateral, using bank funds to pay personal debts, and permitting huge overdrafts by depositors.
The suit against the Bank of Israel has been filed by Erwin Sussman, a Swedish citizen who resides in California, and Paul Guilden, a New York magazine publisher.
Mr. Sussman invested $3.4 million and Mr. Guilden's father, Ira, put up $2 million in North American when the bank was chartered in 1977.
Complainants Also Being Sued
The two, together with Joseph Nakash, an executive with Jordache Jeans in New York, Norman Allen of Birmingham, Mich., and some 20 other investors, are the target of a lawsuit for negligence brought earlier this year by Amram Blum, the government-appointed receiver.
The lawsuit against the bank's directors is one of the largest ever brought for damages in an Israeli court and the first to hold foreign directors of an Israel concern legally responsible for crimes committed by local employees.
"The Bank of Israel knew that there were irregularities and didn't tell anybody," said Paul Guilden, who is executor of Ira Guilden's estate.
Mr. Guilden said the receiver's suit would have a chilling effect on foreign investments in Israel.