In August 2023, an government at Israel Bonds — a company that sells bonds to fund that nation’s authorities and buttress its navy — emailed the Ohio state treasurer’s workplace a gross sales pitch: May the state of Ohio purchase a batch of Israeli bonds for $5 million?
In lower than 40 minutes, the treasurer’s workplace authorized the acquisition, bringing the state’s Israeli bond purchases to a complete of $35 million for that yr.
The quick deal was made between events that had been on exceptionally pleasant phrases, in keeping with a trove of emails and different data obtained by the Worldwide Consortium of Investigative Journalists. And it was not the one matter being mentioned with Israel Bonds. As Ohio Treasurer Robert Sprague, a Republican, allotted thousands and thousands in state funds to the bond purchases, he was additionally making preparations with Israel Bonds’ enterprise growth group to hitch its unique guided journey to Israel, scheduled for later that yr.
Six weeks after the Ohio treasurer’s $5 million buy, Hamas launched its lethal Oct. 7 assault, which killed an estimated 1,200 Israelis. One other 250 had been taken hostage. Within the following days, there was an outpouring of public assist from lawmakers in any respect ranges of presidency in the US for the nation’s closest ally within the Center East. Whereas Israel launched its retaliatory bombardment of the Gaza Strip — and President Joe Biden shepherded billions in funding and navy help by way of Congress — many state and native governments confirmed their assist by way of a lesser-known monetary mechanism: investing in sovereign bonds issued by Israel. Because the begin of the struggle, U.S. states and municipalities have purchased greater than $1.7 billion in Israeli bonds, with Democratic and Republican officers across the nation boasting of their investments as a present of assist for an Israel at struggle.
Israel Bonds, which relies in New York, has in the meantime discovered itself caught up in a worldwide political maelstrom since Oct. 7. Activists have singled out Israel Bonds in demanding that firms and establishments divest from monetary devices supporting Israel’s authorities.
The greater than 2,000 pages of emails and different data obtained by ICIJ provide an unprecedented glimpse inside Israel Bonds’ intensive efforts to court docket public officers within the U.S. with extremely customized gross sales pitches and pro-Israel messaging. The paperwork present how some officers who purchase these bonds have gained entry to an often-glitzy world of gala dinners, cocktail celebrations, and personal conferences with prime Israeli leaders and senior navy officers — and the way these dealings with Israel Bonds typically blurred the traces between personal life and official enterprise.
Some of these practices, the blending up of the private and official, appear to go properly past what’s seen as acceptable.
— regulation professor and ethics knowledgeable Richard W. Painter
In an announcement to ICIJ, a spokesperson for Israel Bonds stated that the bonds are a protected funding and that the group locations significance on constructing relationships with its clients, partially to maintain continuity if key decision-makers depart places of work. “Investors usually choose to invest for a simple reason: Israel bonds offer strong credit as well as strong and steady returns,” the spokesperson, Nathan Miller, stated within the assertion. “The State of Israel has never missed an interest or principal payment in almost 75 years of issuing bonds.”
When an elected official tasked with investing taxpayers’ cash buys authorities bonds, it’s often a dry and easy course of with little interplay between the vendor and purchaser. Authorities officers are typically discouraged from actions that may very well be construed as making a battle of curiosity — that would trigger them, for example, to favor sure belongings for any motive aside from choosing the right investments accessible. Ethics consultants say some state officers could have crossed an moral line of their dealings with Israel Bonds.
“This is an area of ethics where there are many potential conflicts of interest,” stated Richard W. Painter, a regulation professor on the College of Minnesota who was a chief White Home ethics lawyer in the course of the George W. Bush administration. “These types of practices, the mixing up of the personal and official, seem to go well beyond what’s seen as acceptable,” Painter stated, referring to actions of public officers described on this article.
However Miller stated that “Israel Bonds marketing practices and events are legitimate, appropriate, and common practice” within the business.
In an period of struggle and rising considerations over antisemitism within the U.S. and overseas, Israel Bonds sees itself on the vanguard of securing the way forward for the Jewish state. And given the historic scale of its operations, which have raised $52 billion over greater than seven many years, Israel Bonds’ efficiency may have actual penalties for Israel’s future.
‘The buck stops with me’
For many years after its launch in 1951, Israel Bonds, formally often known as the Improvement Company for Israel, primarily targeted on clients from the Jewish diaspora within the U.S. to bolster the fledgling Center Jap state. Israeli bonds have lengthy been pitched as presents for birthdays and bar and bat mitzvahs. However the bond vendor — and its advertising technique — has advanced, turning into an vital supply of presidency financing because it courted banks and different institutional buyers, extra lately together with U.S. states and municipalities.
“In some ways, the Israel Bonds program is one of the — if not the — most successful sovereign debt issuance programs in the history of the world,” stated Mitu Gulati, a regulation professor specializing in worldwide debt finance on the College of Virginia Legislation College. “They’ve never defaulted. And they have managed to tap retail investors,” Gulati stated, referring to particular person buyers, who typically deal in smaller portions.
Within the early weeks of the struggle in Gaza, although, the Monetary Occasions reported that Israel shortly borrowed billions of {dollars} by issuing bonds by way of privately negotiated offers, regardless of rising considerations in regards to the bonds’ dangers. Over the previous yr, credit standing companies have downgraded Israeli authorities bonds attributable to rising political instability, though the bonds are nonetheless thought-about properly inside “investment grade territory,” in keeping with Bloomberg.
However many U.S. state and native governments had been undeterred by the nation’s turbulence. On Oct. 11, Sprague introduced Ohio’s plan to speculate a further $20 million in Israeli bonds. “Now is the time to stand with Israel,” he stated in an announcement. Across the similar time, Stacy Garrity, Pennsylvania’s treasurer, introduced a significant funding, bringing the full for her state to $56 million.
“Israel Bonds have a proven history of providing great value to investors,” a spokesperson for Garrity instructed ICIJ in an announcement. “They are reliable, secure investments that benefit Pennsylvania taxpayers and encourage economic growth in Israel, one of our nation’s greatest allies.”
Joseph Abruzzo, the chief monetary officer of Palm Seaside County, considered one of Florida’s wealthiest counties, introduced a further $160 million funding in Israeli bonds in October alone. Abruzzo, a Democrat, made one announcement in a press convention alongside Mark Ruben, the Palm Seaside government director of Israel Bonds.
Standing behind a lectern adorned with the Israel Bonds emblem, Abruzzo stated: “First and foremost I have a fiduciary duty to the taxpayers of Palm Beach County. … And, quite frankly, when it comes to managing our money, the buck stops with me.”
On March 12, 2024, the Palm Seaside County Board of Commissioners authorized Abruzzo’s request to carry the cap on the investments from 10% to fifteen% of the portfolio. Two weeks later, Abruzzo held one other press convention to say the county’s new title of “world’s largest investor in Israel Bonds,” which accounted for roughly $700 million of its $4.67 billion portfolio. In Might, three Palm Seaside County residents — all U.S. residents with Palestinian heritage — sued Abruzzo for allegedly breaching his fiduciary responsibility to taxpayers and for investing for “social, ideological, and political reasons,” in keeping with court docket paperwork. One of many plaintiffs stated within the grievance that the Israel Protection Forces had killed 37 of his members of the family since Oct. 7.
“We expect the frivolous case brought against me in my capacity as Clerk will be quickly dismissed with prejudice,” Abruzzo, who can be clerk of the circuit court docket, stated in an announcement emailed to ICIJ. He added that the response to the county’s funding in Israel Bonds had been “overwhelmingly positive.”
The Palm Seaside County lawsuit adopted a spate of protests that introduced elevated scrutiny to Israel Bonds because of the struggle in Gaza, which has now killed greater than 38,000 Palestinians, in keeping with Gaza’s Ministry of Well being. Greater than 600 Israeli troopers have been killed because the Oct. 7 assault, in keeping with the Related Press. “This is different than, say, someone managing a hedge fund or a private person’s money — it’s public money,” Lydia Ghuman, a authorized researcher who labored on the lawsuit, instructed ICIJ. “So it’s held to higher standards.”
In December 2023, each Sprague and Abruzzo joined Israel Bonds’ newly fashioned Authorities, Business and Monetary Companies Management group, alongside Illinois’ treasurer, a Democrat, and treasurers from Pennsylvania and Oklahoma, each Republicans. The aim of the group was to assist Israel Bonds strengthen ties with authorities and different institutional buyers within the U.S., in keeping with media reviews. Sprague was named chair.
In interviews, a half dozen consultants on state treasuries defined {that a} treasurer usually chooses bonds primarily based on anticipated efficiency alone, and that intensive interplay with sellers is uncommon.
Invoice Lockyer, a former treasurer of California, stated his workplace purchased bonds solely in arms-length transactions. Early in his tenure, he stated, a significant financial institution hosted a swanky occasion in Napa Valley. Though he attended the daytime actions, he recalled declining a lodge room and skipping the financial institution’s dinner attributable to ethics considerations. “I got my own motel and ate at the local Mexican restaurant,” he stated. “I didn’t want to violate anything.”
Excessive-level visits and entry to Israeli officers
The itinerary for Sprague’s deliberate October 2023 journey to Israel reads like a luxurious trip blended with an official state go to, providing a degree of entry and status accessible to few individuals. In an announcement to ICIJ, Sprague’s workplace stated he had deliberate to pay for the Israel journey with private funds, a few of which he had already spent earlier than the journey was canceled following Hamas’ Oct. 7 assault on Israel.
A spokesperson for Sprague, who has bought $357.5 million of Israel Bonds on behalf of Ohio since 2019, stated that there was nothing uncommon or inappropriate about his relationship with Israel Bonds. The spokesperson added that each Ohio treasurer since 1993 had invested within the bonds, which have “consistently proven to be a strong and reliable investment for the state portfolio.”
The Israel journey was to start with Sprague checking right into a five-star Jerusalem lodge earlier than being shuttled to a gala dinner at a subterranean venue with vaulted stone ceilings. The next days included a visit to the Metropolis of David, the controversial archaeological web site, for “an exclusive tour of places not yet open to the public, including groundbreaking archeological artifacts.”
Additionally on the itinerary: a go to to the nation’s Ministry of Overseas Affairs to fulfill with Overseas Minister Eli Cohen and a visit to Israel’s legislature, the Knesset, to fulfill with the nation’s prime lawmaker, Amir Ohana, speaker of the Knesset. It included a wine tasting at a winery, unique excursions of two navy bases, and a personal, after-hours tour of Tel Aviv’s Museum of the Jewish Individuals to see the earliest copy of the Hebrew Bible. On the ultimate day of the journey, the itinerary listed a go to to Israel’s presidential residence for a gathering with President Isaac Herzog.
In an announcement, Nathan Miller, the Israel Bonds spokesperson, stated that just one public official — presumably Sprague — had registered for the in the end canceled 2023 journey, and that the official deliberate to pay for the journey himself on the similar charge as different attendees. No U.S. public officers have attended an Israel Bonds journey since 2019, Miller stated. He added that Israel Bonds “has frequently facilitated missions to Israel for our leadership and investors” and known as the journeys “substantive educational opportunities for our investors to learn more about the financial health and economy of the country that they have invested in.”
Sprague listed a private e-mail deal with on the registration type for the journey, however his Ohio treasurer’s workplace e-mail account was used for at the least some communications across the deliberate journey. A spokesperson for Sprague stated that “if a correspondence pertaining to office business was sent to a personal email address, it was appropriately forwarded to office channels for any further action.”
This wasn’t the primary time Israel Bonds had helped plan Sprague’s journey. In March 2023, the group hosted a convention in Washington, D.C., to commemorate Israel’s seventy fifth anniversary. In an e-mail message to Sprague’s workplace, a gross sales government for Israel Bonds stated he had reserved a lodge room for Sprague on the four-star Grand Hyatt.
The Washington occasion featured a cocktail reception, dinner and a Q&A with Sprague and Illinois Treasurer Michael Frerichs, for which Israel Bonds supplied Sprague questions upfront. The group additionally supplied Sprague and Frerichs a personal assembly with Israel’s finance minister on the occasion, in keeping with Israel Bonds emails to Sprague. Frerichs didn’t reply to ICIJ’s questions in regards to the potential assembly, and a spokesperson for Sprague stated that the assembly didn’t happen.
Three months later, Sprague’s workplace reimbursed Israel Bonds $727 for his lodge and meal bills on the occasion.
Late final yr, Sprague traveled to Florida, the place he attended an Israel Bonds gala dinner in Palm Seaside to current an award honoring that state’s chief monetary officer, Jimmy Patronis, for his assist of Israel Bonds, together with the state’s main bond purchases. A spokesperson for Treasurer Sprague stated the journey “included work not for state business and that no public funds were used in paying for the trip.” As a substitute, Sprague used marketing campaign funds to pay for “travel expenses and meals related to the trip,” the spokesperson stated. In late 2023, Sprague had already assumed his second time period in workplace and, attributable to Ohio’s two-term restrict on treasurers, was ineligible to run for a 3rd. The spokesperson stated that time period limits of the present workplace don’t “preclude him from running for a different state legislative or executive office in the future.” The spokesperson didn’t reply questions on what marketing campaign exercise occurred in Florida, referring inquiries to Sprague’s marketing campaign, which instructed ICIJ he attended political conferences in Florida with out offering additional element.
Ohio’s ethics regulation forbids public officers from taking substantial presents from an “improper source,” together with from any particular person or group “seeking to do business with the agency.” Issues of considerable worth, in keeping with the web site, embody lavish meals and leisure actions. Sprague’s 2023 monetary disclosure type lists nothing associated to Israel Bonds.
The workplace of Illinois Treasurer Frerichs didn’t reply to ICIJ’s repeated requests for remark, which included questions on who paid for his lodge and eating prices on the March 2023 Israel Bonds convention in Washington. (Illinois ethics legal guidelines forbid a public official from accepting presents of greater than $100 whole in a calendar yr from anybody who does enterprise with the state.) Frerichs’ workplace additionally didn’t reply to questions on whether or not he used a personal e-mail account to correspond with Israel Bonds, because the emails from his public account that ICIJ obtained seem to incorporate no point out of the Washington occasion.
Archon Fung, a professor specializing in democratic governance at Harvard College’s Kennedy College of Authorities, stated that transparency is essential for officers, who naturally face a wide range of potential moral pitfalls. “Conflicts of interest are ubiquitous in public life,” Fung stated. “For somebody in a public role, they have to explain how they are managing these issues. If there is a conflict suspected, then the public is owed an account.”
Israel Bonds stated it paid the bills for audio system on the Washington occasion, and that “expenses were modest and we did not ask our speakers for reimbursement.”
“Just like any other business, it is common practice for broker dealers to host seminars, meetings and conferences, during which clients and potential clients attend to discuss issues of interest to them,” Miller stated in an announcement. “We invite a variety of speakers to present, including elected officials, and often pay for housing and transportation for those speakers who are coming in from far away. These expenses are modest.”
Miller stated that public officers communicate at quite a few conferences and occasions annually, together with for monetary professionals, as a part of their public obligations.
Few states, if any, have fashioned the sort of partnership with Israel Bonds that Florida has. The Sunshine State has a treasury holding greater than 1 / 4 billion {dollars}’ price of the bonds. As chief monetary officer, Patronis, who has led a significant drive to speculate the state’s cash in Israeli bonds, has been acknowledged by Israel Bonds a number of instances lately.
“CFO Patronis is committed to providing the best return on investment for taxpayers’ dollars,” Devin Galetta, a spokesperson for Patronis, instructed ICIJ in an e-mail, including that 4 Florida state treasurers have purchased Israeli bonds. “Since 2001, Florida has earned approximately $29 million in interest from State of Israel bonds.”
In 2018, after Patronis started dramatically growing the state’s holdings of Israeli bonds, the bond vendor honored him at a celebration throughout which he was offered a plaque by Israeli military Maj. Gen. Mickey Edelstein, then the nation’s navy attache to the US.
The next yr, Patronis went on a visit to Israel that was reported by the Tampa Bay Occasions to be partly sponsored by Israel Bonds, which stated it hosted a meal for the delegation. Patronis and a delegation of Florida politicians and enterprise individuals had been joined on the journey by two Israel Bonds executives, in keeping with an official itinerary of the journey posted on-line.
In 2020, Israel Bonds held a celebration by which Patronis was honored for originating state laws that enshrined a dedication to proceed shopping for Israeli bonds. In 2022, the group hosted Patronis as a particular visitor at its annual Prime Minister’s Circle Gala in Boca Raton. And final yr, the bond vendor made Patronis the primary attraction on the similar gala occasion, presenting him with a prime honor known as the Israel Bonds Management Award. This was the identical December occasion that Sprague attended.
In response to ICIJ’s questions on who paid for Patronis’ prices round Israel Bonds occasions, Galetta responded solely that “all appropriate statutory requirements have been met.”
‘What can I do for Israel?’
Final yr, Democracy for the Arab World Now, or DAWN, a nonprofit group that has accused Israel of human rights violations, submitted a grievance to the U.S. Division of Justice alleging that Israel Bonds gave the impression to be violating a federal regulation designed to maintain tabs on overseas affect operations within the U.S. The grievance urged the Justice Division to research whether or not Israel Bonds broke the regulation by not registering as a overseas agent.
Miller known as the letter “false and defamatory” and stated Israel Bonds “is not a foreign agent, and never has been.”
Because the Securities and Change Fee-registered underwriter for bonds issued by Israel, Israel Bonds acts as a personal vendor for the Israeli Finance Ministry, together with in instances of disaster and battle, when gross sales have traditionally spiked. The current funding marketing campaign has raised a staggering $3 billion worldwide.
On the similar time, the group has attracted new consideration from activists looking for divestments from Israel. In Might, the advocacy group Jewish Voice for Peace protested outdoors Israel Bonds’ Philadelphia places of work, shutting down metropolis streets and demanding authorities places of work withdraw investments in Israel.
In a advertising video titled “Israel at War,” launched in December, footage of troopers is overlaid with the phrases: “When you ask yourself ‘What can I do for Israel?’ Go today to israelbonds.com and make an investment in Israel bonds.” As beforehand reported by The Guardian, most of the U.S. states that answered the decision are the identical ones which have railed loudly in opposition to funding methods primarily based on social and environmental points, equivalent to local weather change. The Guardian discovered that almost all of state monetary officers who invested thousands and thousands in Israeli bonds within the first month of the struggle belonged to a conservative group that’s now lobbying to maintain “the Left” out of state treasuries.
In mid-2021, Thomas Clancy, Pennsylvania Treasurer Stacy Garrity’s then-chief funding officer, cautioned that Israeli bonds may very well be a dangerous funding for the state, in keeping with emails obtained by ICIJ. Clancy emphasised Israel’s political instability and the nation being “frequently involved in military violence.” He additionally famous that the bonds will not be traded on the open market — that means, no matter headwinds the nation could face, consumers are caught with the bonds till they pay out. He proposed “investing in more liquid securities, with fewer risks to the investment capital.”
His recommendation was not adopted. Erik Arneson, a spokesperson for the Pennsylvania Treasury Division, identified in an e-mail to ICIJ that the chief funding officer “is one member of the Pennsylvania Treasury Department’s Investment Committee” and that “In this case, the other members of the Investment Committee did not agree with the former CIO’s view on Israel Bonds.” Arneson additionally emphasised that Israel Bonds has by no means defaulted on its funds. “Treasurer Garrity decided to continue the Pennsylvania Treasury Department’s longstanding practice of investing in Israel Bonds,” Arneson added, after listening to a spread of views and contemplating such elements because the bonds’ charge of return.
On Oct. 10, 2023, Pennsylvania’s new chief funding officer conveyed a chance from Israel Bonds for the state to make a further funding “given everything taking place.” It took Garrity simply an hour to substantiate that she would “love” to quickly enhance the state’s funding by $10 million. By Oct. 12, she publicly pledged to double that quantity to $20 million price of bonds.
