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

by Yossi Goldstein

  “Let me give you an example that I have never given,” Eli said later.

  He [Lador] visited her chambers many times before and after the trial. Why? Because the State Attorney’s Office has a relationship with the honorable judge Procaccia. I do not think they went there to discuss me. Incidentally, Caspi visited her office on many occasions as well. He loves pictures and so does she, so I assume they chatted about that and did not discuss the case. Nonetheless, when the prosecution visits the judge so frequently, it arouses suspicion.

  Eli maintained that others did not point this out to her and neither did he, but that he was nonetheless troubled by the situation.

  “Yes, it bothered me,” he recalled. “Even though I trust that they were not talking about me, it was extremely uncomfortable.”

  Once again, Eli’s courtesy and sensitivity shone through, despite the impression the situation created.

  Even the press understood what was taking place. In a sharp, straightforward article on the trial published well before a verdict was delivered, Hadas Magen of the Israeli financial daily newspaper Globes, maintained that the case had already been decided and that the judge’s questions were clear, pointed, and unambiguous.

  “Procaccia has a reputation as a judge who understands math,” Magen summed up her piece gently. “At this point, just before the conclusion of this prosecution, this understanding does not appear to be working in favor of the defense.”

  •••

  Indeed, Eli’s worst fears were realized. In late September 1998, two-and-a-half years after the trial began, the judge was ready to deliver her verdict. Although Eli had prepared two responses, he understood once he entered the courtroom, that his fate had been sealed.

  “During the concluding testimonies, [Procaccia] disregarded things said by the defense witnesses to such an extent that I knew I would not be found innocent,” Eli recalled. “I could hear her comments between the lines.”

  From Eli’s perspective, all seemed lost.

  “I wrote two speeches for the day of the verdict – one for an acquittal and the other for a conviction,” he explained. “My lawyers tried to encourage me, but I did not believe I would be found innocent.”

  As in most cases, Eli’s gut feeling did not mislead him.

  Eli’s conviction was based on the judge’s unequivocal assumption that Eli was a criminal who had helped steal millions from the state. This was the premise that provided the foundation for the lengthy substantiated decision in its entirety. The facts had served the judge as mere illustrations for her thesis.

  She had concluded that Promedico was the only company involved and that Erutaf was nothing more than an empty shell, a bank account for the deposit of commissions. Promedico had assumed the role of Preminger in all areas both as distributor of the pharmaceutical drugs and the companies’ agent in Israel, she concluded. The judge, of course, did not recognize the property rights of the passive agent who maintained no relationship with the manufacturers. According to Eli, she did not believe the defense’s claim that the involved parties had intended on executing the three agreements they had signed. After all, why would they, with criminals like Eli at their helm? According to Procaccia’s verdict, all the evidence that the parties presented to the authorities was false.

  “The deal embodied in the contracts of 1980,” she wrote, “must be considered as artificial not necessarily with regard to the contractual relationship it represents to those examining it, but with regard to the discrepancy between it and the true business reality, [which was aimed solely at evading the payment of taxes in Israel].”

  All those with any involvement in the deal were convicted. According to the judge’s thinking, the parties had sought to keep their distance from the state’s judicial system. For example, when in need of an arbiter, they turned to attorney Amnon Goldenberg. These allegations were an extension of Eli’s unsympathetic treatment during his testimony before the court. The judge viewed the highly respected attorney as another defendant, or at least a suspected partner to the conspiracy, and could not understand why he too was not on the defendants’ bench.

  We should be surprised by the attorneys at the firm of S. Horowitz [in reference to Goldenberg and Azgad Stern] who helped the parties draw up the contractual agreement of 1980 and remained with them on their shared path over the years as faithful associates, who did not regard themselves as obligated – neither morally nor as an act of cordiality – to make full use of their influence on Eli Hurvitz to fully clarify the tax issue.

  Later in the decision, the judge wrote: “Since the lawyers’ actions were not directly scrutinized during this case, I will limit myself to my expression of amazement in this context.” In conclusion, if as she asserted everything was undertaken under the roof of Promedico, including the collection of commissions that were due to Erutaf, then Eli and his colleagues had indeed evaded the payment of taxes.

  In Procaccia’s words, “Commissions by nature undoubtedly constitute a recognized source of income according to tax law, under section 2(1) of the ordinance, as income derived from business.” The judge also concluded that Eli knowingly helped evade taxes and that he possessed the “psychological constitution” to be aware of the tax obligation.

  “What took place here,” she concluded, “was conscious and intentional disregard from the perspective of taxation.”

  To put it simply from the court’s perspective, Eli had helped Erutaf evade paying taxes it owed under the law. He had been responsible for Promedico’s regular transfer of commission charges to Erutaf over a period of years and paid neither taxes nor deducted taxes from them in the process. According to Procaccia, Eli had done so intentionally both to help the foreign investors return their investments more quickly by receiving commissions without the burden of taxes and to improve Teva’s status.

  •••

  Although he had been anticipating the worst possible outcome – a legal conviction – the ruling struck Eli like lightening on a clear day.

  “At moments it almost broke me,” he recalled when describing what he had been through.

  Eli had previously concluded that Lador was “fighting [him] merely for the sake of conviction” and that “he is not being guided by justice.” Now, he believed that the same was true of the judge. At first, these were gut feelings alone. But when he read the decision, he was certain. The ruling was fundamentally distorted, erroneous, and intended to achieve the goal of convicting Eli Hurvitz. As far as he was concerned, it reflected neither law nor justice.

  Eli was not surprised by the sentence Procaccia handed down in early December 1998: a one-and-a-half year suspended prison sentence, meaning it would be implemented only if he committed a related offense in the future, plus a NIS 700,000 fine. Everyone else was shocked by the relatively light sentence, including Lador, who immediately appealed the sentence to the Supreme Court. In light of the verdict, he demanded that Eli be sent to prison. “Punishment of the senior official and the public figure should be based on the same criteria as punishment of regular tax offenders, declared the stunned Jerusalem district attorney.

  Eli had expected no less of the judge. Since he believed that Procaccia had not been guided by purely legal justifications in her ruling, he had not expected her to be consistent and coherent in her sentencing. She must have understood that the question of whether this was just punishment for someone convicted of “using fraud, deceit, trickery, or a position of authority to help someone else evade taxation” would be in the air. After all, in precedents in similar cases regarding much smaller sums of money, those convicted received much heavier sentences, including many years behind bars. Why, then, had Eli not been sentenced in a similar manner in order to set an example? Did his sentence befit a public figure referred to as a “wealthy business element … that should be convicted of criminal actions?”

  Perhaps the judge took into account the recommendati
ons of Eli’s supporters who appeared before her, such as Professor Michael Sela, former Bank of Israel governor Jacob Frenkel, and others, who all stressed Eli’s contribution to the Israeli economy, which she acknowledged in her sentencing. However it is also clear that even without their recommendations, she knew who Eli Hurvitz was and what he had done for the country. Nonetheless, her ruling was still extremely severe. Her sentence may have been influenced by a feeling deep inside her that she had blindly followed her own approach, like the Jerusalem district attorney, and that her ruling had not been purely legal in nature but also contained an ideological element. Perhaps she realized that she had gotten carried away, as she had proven that she could demonstrate sound judgment elsewhere. Perhaps she realized too late that things might have been different from how they seemed to her and that in spite of it all, Eli Hurvitz had not committed the serious crimes of which she had convicted him.

  •••

  Immediately following the ruling, Eli and his family set out to spend the Sukkot holiday in the Galilee.

  “Not one person passed me by without saying: ‘Ignore it. It will be fine in the end,’” Eli recalled. “They were just ordinary people whom I did not really know.”

  He also received 1,600 letters and phone calls from his supporters.

  Eli did not ignore it, for he knew that if he did not respond to Procaccia’s ruling he would lose the things that were most dear to him. An appeal to the Supreme Court was required by the rules according to which he lived.

  “I believe I am innocent,” he proclaimed. “I will appeal the ruling and I will fight to prove my innocence.”

  Although Eli briefly considered resigning as CEO of Teva, he quickly ruled out this course of action. One reason was the unconditional support he received from the members of Teva’s board of directors and their request that he retain his position.

  “I offered my resignation to the board,” Eli explained, but “they wouldn’t hear of it.”

  Another reason was the independent legal opinion he had requested, which stated that he was not obligated to resign. He was also influenced by the expressions of unreserved faith and support from substantial numbers of Teva employees, his fellow manufacturers, and the public, as reflected in the media. Perhaps one of his most important reasons for categorically rejecting demands for his resignation, at least until the conclusion of his appeal to the Supreme Court, was his conviction that if he resigned from Teva at that stage of the game, he would never be able to return, not even after a Supreme Court acquittal.

  I often asked myself what the secret is of a chief executive officer of a large public company. The answer is [credibility:] without credibility, he cannot exist. If I had given the employees of Teva the feeling that I was not completely certain of my own innocence, how could I have faced them?

  In short, his approach was the complete opposite of those who called for his resignation. In order to continue on at Teva, he had had to take his fight for his rights to the Supreme Court. Resigning as the group’s CEO would be understood as an acknowledgement of guilt and would leave him no reason to continue fighting to prove his innocence.

  •••

  One of the many people who called Eli after the verdict in the district court was Pinhas Rubin, a tax attorney of international renown who told him encouragingly that he was convinced that he would win in the Supreme Court. Rubin’s call was well timed, as, in light of the outcome of the trial, Eli was interested in reinforcing his legal team by adding a tax expert. Eli asked Rubin to join Caspi, Agmon, and Tulchinsky. Rubin agreed eagerly. Later, Eli came to regard this as one of his most important decisions during this difficult period.

  The panel of three justices who heard Eli’s appeal to the Supreme Court was meticulous and professional, performing its job with devotion. Justice Theodor Or headed the panel and the members were Professor Itzhak Englard and Yaakov Turkel. Eli’s attorneys submitted their appeal and the court scheduled a session, which took place between January 30 and February 3, 2000. During this period, journalist Yoav Yitzhak appealed to Israel’s High Court of Justice to remove Or from the case due to his friendship with Pinhas Rubin, Eli’s new attorney. The motion made waves in the media, but was ultimately rejected. Neither Or nor Rubin denied their friendship, but Or maintained that their relationship would not interfere with his hearing of the case. It also proved relevant that Eli had asked Rubin to join his team months before Or was appointed to preside over the case.

  The mood Eli sensed during his hearing before the Supreme Court differed considerably than what he had experienced in the district court. Although Lador was present this time as well, the judges were now attentive to the defense and asked relevant questions. There was also no sense of hostility toward Eli and his attorneys as there had been in the proceedings before Procaccia; he no longer felt that the prosecution and the judges espoused identical worldviews. When Rubin presented his arguments, he was clear, decisive, and convinced of the innocence of his client. Eli’s other lawyers were also much more resolute and effective in his defense. For the first time, the matter was presented without embellishment: the approach and the decision had been erroneous and the hostility had been inappropriate. This may have stemmed from the small number of days allocated to the sitting or the change in tactics. At least this is how Eli tried to make sense of the change.

  The Supreme Court justices (Or and Englard, joined later by Turkel) delivered a detailed, clear judgment on September 7, 2000. The ruling made it clear that the justices understood and believed Eli’s version of the events. They regarded his explanations as logical and consistent with the realities of the business world, which did not even exist as far as Procaccia was concerned. In their opinion, the district court judge had erred from beginning to end.

  Supreme Court appeals rarely contain stinging criticism of district court judges to the extent reflected in the judgment of Englard and Or. Englard was less kind than Or, sarcastically referring to Procaccia’s thesis as “too revolutionary an innovation according to our way of thinking,” or as “this idea, which is also an innovation of the district court.” He also commented on Procaccia’s failure to distinguish between an artificial deal and a fabricated deal, which was a distinction that lay at the heart of the case.

  Although Or went somewhat easier on Procaccia than his colleague, referring to her judgments simply as “errors,” he too denied her a shred of grace.

  “In its assumptions and its legal analysis,” he wrote, “the district court made a number of fundamental errors that undermine its legal conclusions.”

  Elsewhere in the decision, he wrote:

  Two errors in the district court’s decision served as points of departure for its analysis of the events that led the court to a number of additional erroneous conclusions and ultimately to the outcome of conviction…. Had the district court reached the correct conclusions with regard to these issues, it is quite probable that the court’s point of view would have changed completely, as would its conclusions regarding the facts of the case at hand and the criminal responsibility of the defendants.

  The lengthy, lucid, and well-substantiated decision was unequivocal in its conclusion: “The prosecution did not fulfill the burden of evidence regarding the mental criteria for the commission of the crime…. Neither the individual attributes noted nor their cumulative total serves to justify the conclusions reached regarding a unique intention on Hurvitz’s part to evade taxes or to assist Erutaf in evading taxes.” Furthermore, the ruling continued, “no criminal deliberation was proven to have taken place among the defendants…. The case in question was a legitimate attempt, devoid of any criminal intent, to present a deal made between the parties, who operated according to its terms.”

  It is no wonder, then, that Lador commented with resentful irony, “We will need to read the decision and see whether the Supreme Court gave us new instructions regarding tax violations.” This was undoubted
ly not the intention of the three Supreme Court justices, who, if anything, were seeking to do just the opposite – to caution prosecutors like Lador and judges like Procaccia against venturing into legal realms that were not their own.

  Upon exiting the Supreme Court after Eli’s acquittal, Lador was swarmed by reporters who urged him to comment. Without blinking an eye, Lador stated directly into the microphone, “Judge Procaccia’s ruling in the district court was wise, courageous, and comprehensive.” In other words, he implied that the ruling of the three Supreme Court justices was none of these things.

  In the words of Nechemiah Strassler of the Ha’aretz daily newspaper:

  The State Attorney’s Office in general and prosecutor Moshe Lador in particular have some soul searching to do. They issued a criminal indictment, even though the professional echelon of the Income Tax Division recommended that they not do so. From beginning to end, the State Attorney’s Office acted as if it had one single goal in mind – not true investigation, which is the real purpose of the public prosecutor, but conviction, at all costs, and by all means necessary.

  •••

  Eli was certain of his complete innocence and had no doubt that he would ultimately be acquitted. Nonetheless, his immense emotional investment in the process caused him to weep when he heard the decision. Not only had justice been served, but his assertions regarding the absurdity of the prosecution and the previous judge’s ruling had been proven correct, one by one. Upon exiting the courtroom with Dalia and his children, he could no longer restrain himself and the level-headed, polite man lashed out against those who he felt had stolen the past six years of his life.

  “I have endured six difficult years, which is much more than it might appear or sound,” he said.