Israel Securities Authority Fines KSM Mutual Funds NIS 1 Million Over Employee Fraud

Israel's Securities Authority has imposed a NIS 1 million fine on KSM Mutual Funds, a subsidiary of The Phoenix, following a fraud scheme orchestrated by an employee. The enforcement action stems from an administrative agreement reached between the regulator and the fund management company.

The employee, Nir Mendes, worked at KSM between 2021 and 2024. He was arrested in June 2024 on suspicion of defrauding approximately NIS 1.3 million from securities trading, allegedly in collusion with his friend Sahar Varon. Authorities suspect Mendes exploited his access to KSM's accounts to execute coordinated trades with private bank accounts owned by Varon.

The Securities Authority determined that Mendes's actions, which put unit holders' funds at risk, should have triggered KSM's internal controls in real-time. However, the fund manager failed to adequately supervise and control the employee's trading activities. Furthermore, after internal controls belatedly detected unusual activity, KSM conducted a partial and insufficient investigation.

According to the Authority, implementing sufficient controls and ensuring employee adherence to fund procedures could have identified and stopped the unauthorized activity sooner, or at least limited its duration. Following the discovery, KSM cooperated with the regulator, enhanced its controls, and compensated unit holders who were harmed by Mendes's actions. Mendes's case was transferred to the Tel Aviv District Prosecutor's Office last year.

KSM Mutual Funds is Israel's largest fund management company, overseeing NIS 123 billion in assets. The company is headed by Avner Haddad and Moshe Almog.