Tel Aviv Court Approves Class Action Against NewMed and Delek Group Over Investor Disclosure
The Tel Aviv Economic Court has authorized a class action lawsuit against NewMed Energy (formerly Delek Drilling), its owner Delek Group, businessman Yitzhak Tshuva, and company executives for allegedly misleading investors by failing to disclose material information. Judge Magen Altuvia ruled that the company did not publish "material information requiring disclosure to investors."
The case centers on a natural gas sales contract between NewMed Energy and Dolphinus, a leading Egyptian gas company and one of NewMed's three largest customers, generating hundreds of millions of dollars annually. In October 2019, NewMed reported an increase in gas volumes Dolphinus was obligated to purchase under a Take or Pay (TOP) contractual mechanism, which obligates Dolphinus to buy gas even if unused. The report presented this as a guaranteed annual volume, regardless of demand.
However, about six months later, it was revealed that the contract included a reduction option allowing Dolphinus to cut its purchase commitment by 50% if the average Brent crude oil price fell below $50 per barrel for a year. The lawsuit alleges this significant information was concealed despite a legal obligation to disclose it. When this option was disclosed in March 2020, NewMed's share price dropped approximately 10%.
The class action was filed nearly six years ago by an investor represented by attorneys Shlomi Mushkovitz and Neti Polinger, supported by an economic expert opinion estimating investor damages at around 55 million shekels. The suit covers all unit holders who purchased shares from October 2019 until the misleading information was revealed in March 2020. The plaintiff claims that exercising the reduction option could reduce guaranteed revenues by about $2 billion over the contract term.
The court found a reasonable possibility that the undisclosed information constituted a misleading omission under securities law, given its significant economic impact on the company’s revenues and business certainty. The court emphasized that even if the likelihood of the option’s exercise was low, the potential financial harm and the strategic importance of Dolphinus as a customer required disclosure. Presenting the TOP clause without the reduction option was deemed a "half-truth" that misled investors by only showing the contract’s positive aspects.
The court awarded 70,000 shekels in costs to the plaintiff and ordered the defendants to file a defense within 45 days. The parties were also instructed to negotiate in an attempt to avoid further litigation.
