Israeli Supreme Court Orders Cyber Firm Founder to Pay $4.7 Million

Israel's Supreme Court has ordered Tsiki Korland Fox, founder of the Israeli cyber company Bio-Nexus, to pay 17.3 million shekels (approximately $4.7 million) to the Czech investment firm Springtide Ventures. The ruling upholds a lower court's decision, which found Fox liable for fraud due to presenting fictitious reports and misrepresentations.

Justices Yael Vilner, Ofer Groskopf, and Yechiel Kasher affirmed the ruling by Judge Yaakov Sharvit of the Tel Aviv Economic Court. The court determined that Fox had defrauded Springtide Ventures by providing false information and fabricated documents, leading the company to invest millions of dollars in Bio-Nexus. Springtide Ventures, an investment arm of the Czech fund KKCG, invested in Fox's company in 2016 and 2017. Fox, who was the founder, chairman, and CEO of Bio-Nexus, controlled it through his company Dom-Spiro.

During the investment process and an option exercise, $5 million was injected into Bio-Nexus. Springtide Ventures also transferred its shares in the Czech company Clario to Bio-Nexus as part of a share swap. The Supreme Court found that throughout these dealings, Bio-Nexus was portrayed as a thriving company with millions in revenue. In reality, its income was significantly lower, and the company accumulated losses of approximately $7.7 million between 2013 and 2017. For instance, in 2017, reported revenues were 14 shekels, while actual profits were $210,000 and losses were $2.7 million. In 2016, reported revenues were $10 million, but actual revenues were only $21,000.

Justice Kasher addressed the issue of business conduct, specifically concerning a third party's role in an alleged breach of trust. Springtide Ventures claimed that Mark Jablonski, a representative of the Czech companies, instructed Fox to present false financial information about Bio-Nexus. While the lower court ruled this did not absolve Fox, the Supreme Court determined that even if Jablonski breached his duty of loyalty to Springtide, Fox would still be responsible as he was involved in that breach. The court emphasized that a third party contributing to a breach of trust may be required to compensate for the resulting damages. Justice Kasher highlighted this point as a "warning sign" extending beyond the case, noting that individuals who knowingly assist in a breach of trust, even in less extreme situations, can be held liable. The court sent a message that cooperating in such circumstances does not exempt one from responsibility.

Another issue decided by the Supreme Court concerned whether rejecting a settlement offer constitutes a breach of the duty to mitigate damages. Justice Kasher established a rule that an injured party is generally not obligated to accept a settlement offer conditioned on waiving claims or rights. An exception may apply only if three conditions are met: the refusal is expected to cause severe and actual consequential damages, there is no practical alternative to mitigate them, and the offer is genuine, serious, and fair. An offer requiring the waiver of claims for damages that does not provide full compensation is not considered fair. In Springtide's case, the offer required them to waive their claim regarding the share swap deal. At the time, an investigation into Bio-Nexus's situation was ongoing, and Springtide learned of another investor interested in purchasing shares. Accepting the offer, the Supreme Court ruled, could have harmed an innocent investor and exposed Springtide to claims of complicity in the fraud. Fox was ordered to pay 35,000 shekels in legal costs.