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IN RE SHAPIRO

January 8, 1973

In the Matter of the Extradition of Samuel SHAPIRO, a fugitive from Justice of the State of Israel

Pollack, District Judge.


The opinion of the court was delivered by: POLLACK

POLLACK, District Judge.

Shmuel Shapira, *fn1" an alleged fugitive from the State of Israel, has been charged there with the crimes of conspiracy to defraud, fraud, use of fraudulent documents, forgery, deceit, theft and false entry. Israel demands his extradition in accordance with a Convention on Extradition between the governments of the United States of America and of the State of Israel. December 10, 1962 [1963] 14 U.S.T. 1708-14, T.I.A.S. No. 5476.

 A complaint charging Shapira with those crimes was filed with this Court on November 30, 1972 and a warrant for his arrest was issued thereon. Pursuant to 18 U.S.C. § 3184 he was brought before this Court for a hearing on December 4, 1972. His counsel requested an adjournment and his release on bail pending the hearing, which were granted. Shapira was at this time the subject of pending proceedings in the Southern District of New York by the Immigration authorities. He is an Israeli citizen and is in this country on a visitor's visa. He had appeared voluntarily at the offices of the Immigration and Naturalization Service in the Southern District of New York and was there served with its warrant for his arrest. He was released on bail pending the proceedings of the Immigration Service; these had not been completed when the complaint seeking his extradition was filed.

 Prior to the commencement of the extradition hearing, Shapira sought a mandamus from the Court of Appeals against this Court requiring it to dismiss the extradition complaint, or, alternatively, to transfer the proceeding to the Eastern District of New York pursuant to 28 U.S.C. § 1406(a). Shapira also sought to obtain an order from the Court of Appeals staying the commencement of the hearing. These applications were denied and the hearing was thereupon held on December 21st and 22nd 1972. Decision was reserved and the parties requested and received time to file briefs.

 The evidence presented at the hearing, consisting of documents furnished by Israel and the explanation thereof by Shapira from the witness stand, are sufficient to establish probable cause to believe that Shapira committed crimes in Israel which are extraditable within the provisions of the Convention between the United States and the State of Israel.

 I.

 The background for the Charges

 Shmuel Shapira is a rabbi, a law graduate and knowledgeable in finance and in securities. In about 1966, perceiving a shortage of money in Israel and a high demand by banks for investment deposits, Shapira organized a private company in Tel Aviv, Shahal Investment Company, Ltd., to do financial broking for a commission, i.e., to direct moneyed investors to banks and insurance firms seeking deposits of investors' funds. He advertised in the press that opportunities existed to invest monies at a high rate of interest with a bank guaranty of repayment. This seemingly brought interested persons to his doors.

 The legal limit payable by banks in Israel for such loans was 11%. The loans were made to subsidiaries of the selected banks for short periods, usually for six months, and the investor received a letter of guaranty of repayment from the bank. Upon maturity, extensions of the loan could be arranged on like terms. For his services in directing such business to the bank selected by him, Shapira received a 3% commission from the bank which he then "split" with the investor, giving the latter 2% and keeping 1% for himself and thus providing a 13% yield for the customer. Interest and the commission and the kick-back to the customer were all paid in advance, at the inception of the loan.

 After a few months, Shapira's customers presumably were not satisfied with a 13% return on their investments, so Shapira approached insurance companies whose interest payment limit was higher than that of banks, with the result that similar business, accompanied by an insurance company guaranty of repayment at maturity, realized for the customer 14 or 15 per cent on their investments, inclusive of the commission kick-back from Shapira.

 These activities continued from 1966 to 1968. In the latter year, Shapira became associated with Shalom Blumberg, a former employee of a bank.

 They organized Shahak Investment Fund, Ltd., Shaham Investment Fund, Ltd. and Otzar Merkazi, Ltd., in each of which Shapira owned 55% of the stock and Blumberg owned 45% of the stock; both were the active directors.

 Seemingly, the activity initially was like that conducted previously by Shapira, i.e., financial broking for a commission from the institutions which received the money. However, customers would be steered to invest their money in Shaham or other private companies against a guarantee by Otzar Merkazi. Shaham invested in foreign securities with the money provided by such customers. Shaham paid the interest to the customers and a commission to Shahak. The customer would be conditioned by a recital of various banks with whom business had been done and the rates of interest they paid and then Otzar Merkazi was included as paying a higher rate, similar to what private firms would pay.

 Otzar Merkazi's business stationery announced that they were Bank's Brokers and carried an ambiguous reference to a company connected with Hapoel Hamizrachi, the religious party in Israel. Persons doing business with Otzar Merkazi testified that they were led to believe that they were dealing with and guaranteed as to repayment by a bank or an affiliate of a bank; or that Otzar Merkazi's guaranty was essentially the guaranty of Hapoel Hamizrachi. The fact that Otzar Merkazi was the personal company of Shapira and Blumberg with little or no assets was allegedly concealed from the investors. In short, it is now claimed by the investors that they were led to believe that Otzar Merkazi was something other than it was. As may be surmised, the loans soured and Otzar Merkazi became bankrupt.

 Shapira and Blumberg were both criminally indicted and were given bail pending a trial. Shapira left Israel for this country and his extradition to Israel is sought by these proceedings. Meanwhile, Blumberg was separately tried and convicted in Israel on November 28, 1972.

 Israel conducted Court proceedings in which complaining witnesses were heard and their evidence and exhibits recorded. This evidence together with the charges against Shapira and the proceedings in Court looking to bring the case to trial in Israel, including the ultimate finding that Shapira had left and was a fugitive resulting in the order for his arrest, form the content of most of the duly ...


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