Netivot is a heavily Sefardi town with a large haredi community, many of whom are Sefardi. Most development or "outlying" towns are heavily Sefardi, as well.
Taxman uncovers Netivot Ponzi scam
By Nati Toker and Amit Benaroia • Ha'aretz
Another Ponzi scheme has reportedly been uncovered in Israel: Tamir Feigelbaum, 36, of the ultra-Orthodox community of Rechasim in Jerusalem, managed millions of shekels for investors, promising monthly returns of 15%. But Feigelbaum's business fell into difficulties, and the Tax Authority launched an extensive investigation after one of Feigelbaum's agents was unable to explain the presence of large sums of money in his bank account.
The business was operated like a Ponzi scheme, said a Tax Authority source. The core principle of such a fraud is that new investors finance the relatively high interest paid out. If too many investors want their money back, the business collapses. The source described Feigelbaum as a regular guy adept in the machinations of the capital market.
The business ran smoothly for years, because Feigelbaum paid interest regularly. It was said the banks were not involved in any loans, and the funds were deposited in his own account. The Tax Authority says the business had not reported income tax during its 11 years of operation.
Feigelbaum's clients - primarily Haredim and residents of outlying areas - lost their entire investment. The police are not known to be investigating the affair.
The Tax Authority says Feigelbaum evaded paying millions of shekels in taxes, and that his annual turnover was NIS 200 million. The state is seeking to collect NIS 73 million.
Feigelbaum reportedly operated a network of 10 to fifteen independent agents, who solicited business on their own behalf. Netivot, where Feigelbaum focused most of his efforts, is believed to have been hit particularly hard. A former Netivot client estimates that 80% of the city's population had invested with Feigelbaum. "Young people are driving around in BMW cars bought with money they made from investing with him," the source said. "They were making NIS 20,000 a month, in addition to their salaries, and living it up."
Feigelbaum reportedly permitted investors to withdraw their principal. "He's a genius. There's no doubt about it. He developed unique methods for making a fortune on the stock market,' one agent says. Nevertheless, like many of his investors he admits he did not know exactly where Feigelbaum had invested, or how he operated. The Tax Authority says Feigelbaum told investors he had invested in high-earning securities.
A regular guy
Investment with Feigelbaum did not promise a set return. Some agents received 15% a month, and they in turn offered less to their investors, depending on the security demanded. The expiration date - monthly or quarterly - also differed among investors. A source knowledgeable about the probe of the case said some investors had deposited legitimate funds, while others, the investigators believe, had used unreported income.
The Tax Authority is now tracking down the hundreds of investors and has reached dozens so far. Feigelbaum, who was arrested in March, admitted to financial activity but denied the suspicions raised against him.
His agents are suspected of evading taxes on their agent fees. Investors who were unable to explain the source of their funds have also been questioned.
Feigelbaum was released conditionally after his arrest last March. The Tax Authority says he has admitted in the course of the investigation that he has been involved in securities trading since 1998, and that he had not reported the establishment of the business or its revenues to the Tax Authority.
One of Feigelbaum's agents, Shmuel Madar, 43, of Moshav Shtulim near Kiryat Malachi, who was arrested in early April and released conditionally, allegedly has admitted he had invested money with Feigelbaum, brokered between Feigelbaum and other investors and had not reported income of between NIS 700,000 and NIS 850,000 in brokerage fees, but had reported only the interest earned on his investments. He also reportedly said he earned NIS 141,000 on his investments and has still not received brokerage fees due to him of NIS 241,000.
Sources once been in contact with Feigelbaum say he became entangled with a crime family after a demand he return money invested by a well-known rabbi from Netivot. Feigelbaum ceased payments to all of his investors following the incident.