Monday, March 9, 1998
The Literature:
Amos Aharoni's pay day cometh
In 1985, he fled to the United States, leaving behind huge debts.
His creditors were ready to settle for a fraction of what they were
owed until Ha'aretz revealed he had assets worth millions. Nathan
Lipson explains why they now want his assets seized
By Nathan Lipson
Amos Aharoni, one-time chairman of Betar Jerusalem soccer team
was known to be as serious about business as he was about sports in
his heydays in the 1970s and 1980s. Today he has rather different fish
to fry as he tries to keep creditors at bay.Last month he was
summoned to respond to a petition filed against him in bankruptcy
court in the state of New York.
"You are hereby summoned and required to submit an answer or
motion to contest the relief sought in the petition, within 20 days of the
service of this summons. If you fail to respond to this summons, the
relief requested in this petition may be granted," reads the dry
language of the summons. Behind it all lies quite a tale of riches to rags
and back to riches again. And if his angry creditors have it their way,
he will soon be back in rags again.
Aharoni was long known in Israel for establishing and controlling an
array of companies - all bearing the name Mentor - that dealt with
tourism, insurance, media, diamonds and mainly the gray market.
Also, at the end of the 1970s he served briefly as chairman of the
Betar Jerusalem soccer team but soon left the post amid conflicts with
the players. Aharoni was also an avid tennis player - his hobby to this
day.
But in the second half of the 1980's, his companies ran into financial
difficulties. At the end of 1985, he left Israel for the United States,
and immediately afterward rumors abounded that he had actually fled
and had no intention of returning. Aharoni tried to discredit these
reports, telling the press: "I traveled to the United States for four days
only in order to raise some money and return. But since my assets
were seized, I decided to stay here for a while longer and try to earn
some money to pay my creditors."
He left behind his wife, Clara, and their four children. In a press
interview at the time, she claimed her husband was living in poverty.
"Amos lives in his office, he does not have enough money for a hotel
room... He has a membership at the YMCA and goes to a health
club... The great Amos Aharoni is living like a nomad." In April 1986,
a year and a half after Amos Aharoni fled, Clara and their children left
the country, too. People who knew the couple said that she sailed
away on a yacht - an easy way to leave the country without being
noticed.
In September 1987, the Tel Aviv District Court declared Amos and
Clara Aharoni bankrupt, issued liquidation and receivership orders
against their assets and appointed advocate David Shimron as
receiver and trustee. The Aharonis left behind a long list of creditors,
mainly Jerusalem business associates. The debts were estimated at
millions of shekels, but Shimron
was able to find proof for debts of about NIS 1.8 million, worth
about $1.1 million in nominal terms. Shimron managed to liquidate
some of Aharoni's assets for the nominal sum of about NIS 800,000
by selling off Aharoni's luxurious Jerusalem house as well as another
house in a suburb of Jerusalem and by collecting sums owed to
Aharoni.
However, Aharoni's debts were not fully repaid, and are estimated at
about $1.8 million in current terms. His creditors believed that he had
collected few assets, if any, while living in the United States, and were
prepared to settle for a small portion of what they were owed.
On Oct. 20, 1997, an article in Ha'aretz changed matters - both for
Aharoni and his creditors. The article revealed that Aharoni
controlled, managed and served as chairman of a NASDAQ-listed
U.S. company - Actrade International - and that his shares in the
company were worth tens of millions of dollars. This prompted
Aharoni's creditors and Shimron to change their policy and try to
seize his overseas assets.
Aharoni's creditors were not alone in reconsidering their relations with
Aharoni; Actrade's largest insurer - American Credit Indemnity -
decided to cancel the insurance policy it had with Actrade because of
Aharoni's past. In addition, some of Actrade's investors posted the
article over the Internet on Yahoo!, Silicon Investor and The Motley
Fool billboards.
As a result, some investors who joined a conference call that Actrade
held about a month ago, asked Aharoni about his past. Aharoni did
not deny the details in the article and said that the legal procedures
would not harm Actrade. Aharoni's legal counselor stepped in to add:
"It can happen to everybody."
Aharoni's steps to the executive suite in the United States began in
February 1991 when he was appointed chief financial officer of a
small New York-based tools exporter called Acquisition Capability,
which changed its name to Actrade International in October 1992.
The following August, Actrade announced that a subsidiary, of which
Aharoni was president, had issued a new financial product - TAD,
standing for Trade Acceptance Draft. TAD is a commitment made by
Actrade to acquire receivables for an immediate payment of 75
percent of its face value plus 2.5 percent and a monthly fee of 1.5
percent - until the receivable is fully paid.
In other words, TAD is no more than a basic gray market product -
the same line of business that drove Aharoni out of business in Israel.
Two months after Actrade announced TAD, Aharoni was appointed
chief executive officer (CEO) of Actrade and on September of '97 he
assumed the post of Chairman after his predecessor resigned. After
Aharoni's appointment as CEO of Actrade, the company reported
growing revenues and earnings; from $9.4 million in revenues in the
year ending June 1993 to $43.5 million Dollars in 1997.
Its net income of $200,000 in 1993 grew to $1.9 million by 1997.
The growth in revenue and earnings was reflected in the soaring price
of Actrade's shares - from $2.25 when Aharoni took office to $28.7
last November.
By August 1997, Aharoni held 2.3 million Actrade shares through
NTS corporation - a company registered in the British Channel
Islands and of which Aharoni is the sole officer. When Actrade's
shares were at their peak, Aharoni's shares, which constitute 31.4
percent of Actrade's capital, were worth $67.3 million. As of August
last year, Aharoni also had approximately one million unexercised
warrants and stock options at an average exercise price of $6.
When Actrade's shares were trading at $28.7, this bundle was worth
about $23 million. Aharoni's appetite for warrants and stock options
was evidently insatiable. In January this year he was allotted one
million more warrants at an exercise price of $15.4 Dollars - $5
below the price of the shares when the warrants were granted. This
provided him with a gift of $5 million.
In addition to Aharoni's Actrade securities, which were worth over
$100 million in November, he and his wife owned two apartments in
New York - one on Broadway and one on Central Park West.
People acquainted with the Aharonis have described the apartments
as "very luxurious."
These were the assets that Aharoni's creditors saw in front of them
when they filed the petition.
The relief sought in the petition is threefold: An injunction against the
commencement or continuation of any action against the Aharonis
assets; an order that the Aharonis turnover all their properties to the
trustee, Shimron; and an order that the Aharonis give a full declaration
under oath of all their assets - wherever located. The summons gave
them 20 days to submit an answer - ending today.
In hindsight, Aharoni was better off exercising the warrants and stock
options because since November Actrade's stock has plummeted to
about $11. The sharp fall can be attributed mostly to massive
shortselling by investors. One of them goes by the name of "Mr.
Pink," after the character in Quentin Tarantino's film Reservoir Dogs.
Mr. Pink told Ha'aretz that he sold short about 150,000 shares of
Actrade, reaping him about $1 million in profit.
The low at which Actrade's share currently trades has made the
million warrants Aharoni received recently go out of the money.
However, on Friday the company filed a report with the Securities
Exchange Commission stating that "the company's CEO [Amos
Aharoni] has agreed with the board to rescind the recent extension to
his employment agreement and to waive future entitlement to incentive
compensation thereunder until the board and shareholders agree upon
a company-wide incentive program."
The board also decided to cancel the one million options Aharoni
received in January. Legal sources told Ha'aretz that the move is
intended to temporarily reduce Aharoni's tangible assets in order to
impair his creditors' ability to collect their debt. Other sources said
that Aharoni will probably get cash payments instead, which will be
harder to track.
Meanwhile, his request to postpone the deliberations for 11 more
days is still pending and he has therefore not yet answered the
petition. This has left investors and creditors worried that Aharoni,
who declined to comment on any details in this or the previous article,
might try to hide some of his assets or take other actions to avoid
paying his debts.
c copyright 1998 Ha'aretz. All Rights Reserved |
