Eli Hurvitz and the creation of Teva Pharmaceuticals: An Israeli Biography

by Yossi Goldstein

  Despite Promedico’s profit, Eli was not pleased by the partnership with the two foreign investors. Since they had stipulated ahead of time that each party retained the option to buy the other parties out and that the highest bidder would win (a buy-me-buy-you or BMBY deal), Eli initially thought that Promedico would purchase Erutaf. In February 1987, after failing to reach an agreement regarding price, Teva sold Promedico to Erutaf’s foreign owners for $4 million. After the sale, the former partners still had accounts to settle with one another and were forced to enlist the services of mediators and intermediaries.

  •••

  Eli explained the essence of the deal to tax investigators in this simple, straightforward manner. When the interrogation ended, he was certain he had effectively explained his position, despite the patent tension that had prevailed throughout it. He was sure that he would be called on to testify in the Jesselson trial and he thought that that was all.

  The income tax investigators looked into the matter, found flaws in the arrangement, and suggested that Eli pay a small fine and dispense with the matter altogether. Eli refused. He saw paying the fine as tantamount to admitting guilt to an offense he did not commit. The tax investigators did not recommend pressing charges and passed the case and their recommendation on to the State Attorney’s Office, which was standard practice. Approximately one-and-a-half years after being questioned at the Tax Authority office in Jerusalem, Eli learned from newspaper headlines that the State Attorney’s Office49 had decided to issue an indictment against him.

  As was typical in such cases, Eli was summoned to a hearing at the State Attorney’s Office. His experience at the hearing was similar to that at the offices of the Income Tax Division of the Tax Authority. His attorneys again argued before the investigators that his actions were not even remotely illegal. Moreover, Eli was acting as the CEO of a public company, having taken the advice of learned tax counsel, and derived no personal gain from the transaction. Thus, even if the transaction was subsequently deemed to be illegal, there was no precedent under Israeli law to ascribe criminal intent to Eli personally. After another period of discussion at the State Attorney’s Office, he learned that an indictment would be issued against him.

  In late March 1996, then-state attorney Edna Arbel issued a harsh indictment against Eli, Benjamin Jesselson, Alexander Eisenberg, and Promedico. The 18-page document listed 14 charges relating to offenses such as concealing income, keeping fraudulent books, fraud, and falsifying corporate documents, all of which was punishable by seven years’ imprisonment. According to the indictment, the parties had attempted to evade paying taxes on the commissions by deciding that “the foreign investors [would be presented] as agents of the suppliers, so that they would ostensibly be eligible to receive the commissions by virtue of their own rights.” In other words, Erutaf was paid the commissions that were due to Promedico without paying taxes on them. The untaxed commissions were then transferred directly to Erutaf’s bank account in Switzerland and recorded neither in Promedico’s books as income from commissions nor in the reports submitted to the tax assessor.

  The primary focus of the indictment was the marked discrepancy between the agreements signed by the parties, on the one hand, and their true intentions in purchasing Perminger, which, the indictment insisted, had been “to evade paying taxes as mandated by law in Israel.” According to Moshe Lador, who directed the prosecution in all its stages in conjunction with his aide Hagit Mack, the three contracts were fictitious documents that were never meant to be executed as such and that served to conceal more than they revealed. Lador and Mack had concluded that Promedico had not operated in accordance with the agreements it had signed and simply collected commissions in Erutaf’s name in order to avoid paying taxes. According to their logic, Promedico existed as a company, whereas Erutaf did not. Promedico thus had seized control of Erutaf’s share of the profits.

  According to the prosecution, “Promedico served as the suppliers’ agent in practice and was entitled to the commissions,” and therefore should have paid taxes on them. The indictment stated, “Promedico is subject to Israeli taxation according to all possible criteria.” According to this logic, “Erutaf had not served as the suppliers’ agent and played no role whatsoever in the import and distribution of their products in Israel.” All it did was amass commissions in the bank account it opened in Switzerland.

  The prosecution’s bottom line was that the commissions were Teva’s income, by means of Promedico, and that Teva and its corporate management had been obligated to pay income tax for these commissions. By not doing so, Teva had concealed $18 million in income. It had also violated the law by not deducting taxes for Erutaf in accordance with Israeli legislation on taxing non-residents. Eli thus was charged with assisting the owners of Erutaf in evading taxes in Israel between 1980 and 1987, when Promedico was sold. According to the prosecution, he had done so knowingly with malicious intent.

  As far as Eli was concerned, the indictment was filed with malicious intent. He knew that the contracts signed by the parties in the course of the deal reflected the agreement between them. No secret deal had been struck between him, Jesselson, and Eisenberg, no unwritten understandings had been reached, and no partnership had been forged. The three agreements that had been signed were clear and simple: Erutaf purchased the right to serve as the agent of the foreign distributors and Promedico was appointed to distribute the drugs for Erutaf. Promedico also purchased all the property that had belonged to Preminger’s company.

  Since all this was done in good faith, Eli bore no criminal culpability. After all, he had relied on professional opinions that had approved the deal. Moreover, during all the years that Promedico had been owned by Teva, the tax authorities had been provided with all the relevant documents.

  “No one wanted to hide anything,” Eli testified before the court.

  Most importantly, he himself had served only as the non-active chairman of Promedico and as such took no part in its operations and was never informed of its activities and the details in the indictment. He had, of course, not been ordered or instructed by anyone to conceal commissions and he lacked the psychological constitution to commit the crimes with which he was charged.

  Eli was furious. At some stages of the investigation, he was convinced that the clear and simple facts themselves would prevent him from being indicted. Indeed, this is what his attorneys had been told by senior officials in the State Attorney’s Office. He regarded himself as beyond reproach and, in light of the charges against him, he was certain that someone was “out to get him” because of his success and his status.

  “I have no doubt,” he maintained, “that if it were not Mr. Hurvitz in my position but rather someone else who lacked my status and success, no indictment would have been brought.”

  He was sure that Lador was waging a personal war against him and that the leaks from the investigation, which began well before the indictment, originated in his office. Eli believed that Lador was taking advantage of his case as an opportunity to win prestige and that this helped explain his actions.

  “He had an interest in bringing an indictment,” Eli maintained.

  I am successful and the company I am heading is successful. Someone saw this as an opportunity to make the headlines…. It would be naïve to think that all the leaks on the subject and the preliminary reports in the press were not deliberate and that decision makers do not read newspapers and fear the press.

  Eli did not mince words. Although the shots he fired were aimed at State Attorney Edna Arbel, who had only recently assumed her position, he felt it was Lador who was responsible for his persecution.

  “A new state attorney just took office,” he explained. “If I were a new CEO and one of my people [in reference to Lador] were to come to me and insist on his opinion, no matter how quick I was, I would be unable to learn enough and it is reasonable to assume that I would adopt his position.”
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  Indeed, Eli later learned that Arbel had opposed bringing an indictment against him.

  “Edna Arbel was given the file to take home on Friday night in order to come back on Sunday morning with a position on the case,” he later said.

  It was her first case. She told [Lador and Mack] that they would lose the case. Lador answered: “We might lose and we might not.” “It will involve many failures,” she told them, “and I can confidently say that if we do not lose it in the first round, we will lose it in the second. We are not right. Would Eli risk his life for some guy? Perhaps he would if he worked for him or if he had given him something extremely unusual. It’s groundless.”

  Lador stood his ground, Arbel gave in, and the indictment went forward.

  “Have they lost their minds?” Eli asked rhetorically in a press interview following his indictment.

  They think that I committed fraud? Even if I were to take an extreme position and say that the income tax authorities are right and the commissions were subject to taxation – who owes the taxes? Whoever received [the commissions]! And that was not me. Did I receive income from it? Did Teva? The answer is “no.” You need a twisted mind to invent a theory to explain my motive: the ostensive existence of verbal agreements regarding a division of proceeds between the partners. All of a sudden, everyone is Sherlock Holmes. I have never in my life seen an indictment so full of blatant deliberate errors. [At Teva,] we have a team of the best lawyers and accountants in the country. If someone had told me that Promedico involved even the slightest risk of breaking the law, I would have abstained.

  He concluded his remarks during the interview as follows:

  “There is an element of cruelty in the system. In England, the moment I am acquitted, I can submit a counter complaint against the state. I would personally sue the person who decided I was guilty. Why does he [Lador] enjoy a right that I do not? I am taking care not to slander him…”

  In hindsight, Eli had good reason to refer to Lador with such derogatory terms. In light of the final outcome and the subsequent decision of the Israeli Supreme Court, Eli’s strong feelings on the issue even before the beginning of his trial appear to have been well placed.

  •••

  Eli’s trial began in the Jerusalem District Court50 on June 13, 1996. Without a doubt, it was one of the most difficult periods he ever experienced. He felt persecuted and humiliated, as if he were fighting for his life.

  “Since the indictment against me,” he told reporters, “the smile has disappeared from my face.”

  Even so, Eli could feel the support he was receiving from many people. His family provided him with unconditional support throughout the entire ordeal. Family members still remember that during the trial, Friday nights, when the entire family traditionally gathered around the Sabbath dinner table, were particularly difficult. Teva’s board of directors provided its categorical backing and the employees of Teva expressed their support orally and in writing at every possible opportunity. Friends from numerous places gave him strength.

  “Eli is an extremely honest man with great integrity,” Dov Lautman said in a newspaper interview during the trial. “He is the last person who would ever break the law.”

  Avraham Shavit followed suit: “I’ve known him for 30 years,” he said. “He’s an excellent guy and super-honest.”

  And so on and so forth. Even the press came out with positive things to say about Eli.

  Nonetheless, Eli felt a great sense of unease. He longed to put an end to the saga and requested a speedy trial. The number of witnesses set to testify on his behalf was intentionally small. He felt uncomfortable with the trial from the very outset. In addressing the court, Lador charged, “respectable businessmen have done unrespectable business…. The honorable defendants smuggled money out of the country…. Hurvitz knew that the Promedico deal had been constructed to evade paying taxes…” These assertions had public reverberations and made the headlines. Despite his certainty of his own innocence, Eli felt as if the world was against him. The remarks that District Court justice Ayala Procaccia, from whom he felt nothing but antipathy throughout the trial, made did little to console him.

  In addition to the details of the matter itself, Eli’s main testimony in court laid out the manner in which he managed Teva, the group’s business culture, and his strategy as its CEO. All of these, he explained, made it impossible for him to have taken actions along the lines of those the prosecution attributed to him. Again and again, he explained that the CEO of Teva is not the person who decides who does and does not pay or withhold taxes. In a publicly traded company, all financial matters are subject to external audit by chartered auditors and the adequacy of tax payments is a examined with great care. Such decisions were made well below him and always without his knowledge. A CEO seeking to evade taxes would need the cooperation of a few dozen employees from the company’s financial division, as well as the complicity of the company’s auditors, he argued, and for this reason the charges against him were devoid of all logic.

  Eli emphasized at length his decentralized management style and the fact that he placed his trust in those in his charge and in his professional advisors. As an example, he pointed out that he did not even know the combination to the safe in his office and that such information was known only by his secretaries. He again expressed his criticism of the State Attorney’s Office and claimed that the indictment was a personal vendetta, nothing more. He concluded his testimony by declaring: “I have been the CEO of Teva for more than 20 years and I have had my achievements and my failures. But more precious to me than anything else is my good name, for at the end of the day, that’s all a person has.”

  As upsetting as the trial was, not once did Eli retreat from his firm insistence on recognition of his innocence. Moreover, his testimony was never contradicted by any of the witnesses, including those brought by the prosecution.

  “Throughout the entire trial,” Eli explained, “not even one prosecution witness disagreed with us on the fundamental issue.”

  The Supreme Court justices who subsequently considered the case also noted this.

  However, during the trial, Eli felt that his defense team was not functioning effectively and was failing to meet his expectations. He was angry with Amnon Goldenberg, who had been serving as his attorney for more than two decades and was considered one of Israel’s top lawyers. From Eli’s perspective, he could have been expected to come to his defense almost naturally. Instead, Eli maintained, when the police questioned Goldenberg, he failed to effectively explain the simplicity of the deal and retreated behind longwinded legal explanations. It was almost as if Goldenberg was defending himself, since he and his law firm had represented all the involved parties in the deal when it was reached in 1980.

  Once Lador called him to testify, however, Goldenberg strongly supported Eli, affirming clearly and simply during the trial that “the agreement between Promedico and Erutaf had not been meant to evade taxation.” This annoyed the judge, who asked him question after question to test the veracity of his testimony, which was clearly of great significance in light of Goldenberg’s legal experience and knowledge. Yet as far as Eli was concerned, it was too little too late.

  Instead of Goldenberg who had always represented him, Eli turned to Ram Caspi, who was reputed to be a brilliant lawyer and an excellent litigator, but also disappointed him in the end. Eli knew from the outset that Caspi was not an expert in the field of taxation. However, he expected him to know how to effectively conduct a trial and he did not do a particularly impressive job. For example, by means of their attorney Jacob Weinroth, both other defendants submitted a claim of “no case to answer,” arguing that they were not obligated to respond to the charges against them as the prosecution did not appear to possess any evidence. Caspi wanted to sign this petition too, but Eli vehemently opposed the move, regarding it as a legal maneuver that, if upheld, would not prove his
complete innocence. In the end, Eli had been right to oppose the move, as Procaccia rejected Weinroth’s claims.

  Eli’s problems with the way his defense was handled went far beyond his impatience with longwinded legal explanations or legal maneuvers. Indeed, he would later go as far as to claim that Caspi did not believe he was innocent. He believed that Caspi had been “drawn into following an opinion he had received from one of the most important accountants in Israel.” Eli was also greatly angered by Caspi’s contacts with the State Attorney’s Office during the trial regarding a possible plea bargain under which all charges would be dropped in exchange for payment of a hefty personal fine, against Eli’s explicit wishes. When Eli learned of the negotiations, he informed his attorney in no uncertain terms that he was unwilling to pay “a fine of even one cent,” and when offered a deal that would require him to plead guilty to one of the lighter offenses in exchange for dropping the more serious charges, he categorically refused. Eli continued to insist that he was not guilty and sought to prove his innocence. The fact that Caspi had conducted negotiations on this issue caused him great anguish. Although his other two attorneys, Menachem Tulchinsky and Zvi Agmon, performed their jobs faithfully, the task of managing the defense had been Caspi’s alone and Eli was disappointed by his performance.

  Eli did not burden his attorneys with his emotional hardships during the trial, but rather regarded the prosecution and the extremely serious actions it had taken as a deviation from acceptable norms. He had already articulated his firm opinion regarding Lador before the trial began, and, from his perspective, the proceedings during the trial itself justified his contemptuous pre-trial remarks.

  “Lador is no fool,” Eli remarked, describing the actions of the prosecution with uncharacteristic severity. “He is a hunting hound. He smells blood and catches [his prey].”

  But he was most surprised by judge Procaccia, whose leading questions encouraged Lador and were aimed at confirming her own thesis. Eli felt that the mood Lador and Procaccia set in the courtroom played a central role in the drama that unfolded.