Ha'aretz reports:
At the age of 7, Laloum relates, he underwent an experience that shocked him and ultimately had a major influence on him. "We moved from the north to Jerusalem," he explains. "The first week we went to school, to register. The principal told my father to his face: 'I won't let your son in because you're frankim [a derogatory word for Mizrahim].' My father was a simple man, who had become religious on his own. That was the only time I saw him cry. Really, with tears."
Chabad to its credit never (at least in the last 30 years) excluded Sefardim from its schools. Ethiopian Jews, however, are a different story. (See also this.)