Where have millions in Kfar Chabad residents’ money gone?

The word spread quickly in Kfar Chabad: Several dozen new homes would be built in an expansion of the northern part of the town, which was founded in central Israel in 1949 and serves as the country’s center of the Chabad (Lubavitch Hasidim) movement.

And the land on which they were to be built was being sold at an affordable price. The expansion was major news in the town, which is dotted with old single-family homes. Residents were informed that there would be a lottery for the right to be allocated a plot of land. Hundreds signed up; 64 won.

One of them was S., the father of a large family who had begun imagining how he would build a house next door for one of his children. Like all the winners, he had made a down payment of 50,000 shekels (about $14,200 at today’s rate of exchange) for expenses and the infrastructure work necessary for the project.

The millions of vanished shekels were discovered as part of a broader examination of financial irregularities in the town’s cooperative association.

Later on, he was asked to add another 65,000 shekels (about $18,400). It happens, he thought; expenses balloon. But even then, he began to have doubts about the fate of the money. “There were rumors in the synagogues and at the ritual bath houses that the money wasn’t there,” he said, “that they’d used it for other things.”

Fourteen years have elapsed since the project was announced and the winners’ money began to flow into a designated account, and not a single home has been built. And where are the 7.5 million shekels (more than $2.1 million) paid in by all the winners? Good question. Only 800,000 shekels ($227,000) remain In the designated account .

Even an accountant who was appointed to investigate the matter was not able to find clear answers to this question. According to the report he wrote, another 800,000 shekels were transferred to the current account of the Kfar Chabad association, and additional funds were transferred to cover expenses like repayment to a charitable association, a loan and Lag Ba’omer events. At least 3.5 million shekels (nearly $1 million) disappeared without a trace.

The millions of vanished shekels were discovered as part of a broader examination of financial irregularities in the town’s cooperative association. In the wake of this probe (and the report that was issued upon its completion), in 2018 the Cooperative Association Registrar – the Economy Ministry unit that regulates cooperative community associations – decided to appoint an oversight committee and an accompanying accountant. Residents greeted the decision with both surprise and indifference. Perhaps not all of them knew or understood the suspicions that lay behind the decision: wrongful use of their money.

Since 2015, the registrar stated, the association had not cooperated with a series of requests for clarifications concerning various actions it had taken. For example, the registrar sought to clarify what had caused the association to lose about 1 million shekels ($284,000) in 2017 and about 5 million in 2016. The report that accountant Yehuda Amsalem was asked to write was aimed at providing these clarifications.

A look at the confidential report, obtained by Haaretz, provides a behind-the-scenes look at the association’s activities and reveals a number of disturbing findings, including questions that remain without an answer – certainly none that might assuage concerns about the irregularities.

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The report found that millions of shekels of residents’ money had seemingly disappeared from the bank; that public lands had been leased and rented out at a loss to private entrepreneurs; that contracts had been signed in a manner contrary to regulations; and that various actions had involved conflicts of interest between the directors of the association and its legal adviser.
The most prominent name in the report is that of Binyamin Lipschitz, the “sheriff” of the town, as people knowledgeable about the subject call him.
Lipschitz wears several hats. He became chairman of Kfar Chabad’s association in 2003. He also serves as deputy head of Sdot Dan Regional Council (where Kfar Chabad is located) and is a member of the local planning and building committee. It seems his name appeared at nearly every bureaucratic juncture that residents encountered.

Even before the probe by the registrar, Lipschitz’s many roles raised some red flags for authorities, and in 2015 the Interior Ministry demanded that he relinquish one of these positions. In response, Lipschitz quit the role of head of the association, but didn’t exactly relinquish power. At the same meeting at which he tendered his resignation for that position, he took up a different one: secretary of the association, and authorized signatory there. The title changed, but the power remained.

The scandal over the building project has its origins in 2008, when the winners of the lottery were announced. They paid the first installment of their down payments, and nothing actually happened for years – including after payment of the second installment in 2016.

Lipschitz had an answer to this, according to the registrar’s report. He claimed that the missing millions had been transferred as planned for the purposes of developing allotted land, and gave details: infrastructure for sewage, connection to the water system, drainage cisterns, roads and leveling plots of land. There is just one problem with this version, writes Amsalem, the accountant. All those works had been completed in 2007 – before S. had even begun to imagine the dream house for his son – and were unrelated to the expansion project.

After the report was submitted, the regional council signed an agreement with the association whereby it would pay for the expansion work. The budget for that would be taken from the funds remaining in the dedicated account, with the rest coming from the regional council’s coffers. In other words, the council, of which Lipschitz is the deputy head, would take money from the general population of the town and transfer it to pay for the project, which Lipschitz had initiated in his previous position – and the funding for which had disappeared.

When Haaretz queried the regional council about this, it turned out, amazingly, that the cost of the necessary development work had decreased significantly as, according to the council, an examination found that the funds remaining in the association’s account would suffice.

“The findings of the report are totally baseless,” Lipschitz said in a reply. According to him, there never was a designated bank account for the project and the funds didn’t disappear. Only recently, he said, did the association’s general assembly approve financial reports for the years 2018-2020. “They contain no statement at all about ‘disappearance’ of funds,” he said. The question as to where the money is remains unanswered.

Unapproved expansion

About 16,000 people live in the area of the Sdot Dan Regional Council, about half of them residents of Kfar Chabad. Lipschitz is one of them, as is his father, Shlomo. In 1986, the association gave approval to the elder Lipschitz to establish a small slaughterhouse for Chabad Hasidim on a plot of land of 350 square meters (3767 square feet).

The accountant’s report recounts its history in the subsequent years, during which the slaughterhouse and the Lipschitz family became an integral part of the ultra-Orthodox town. A key moment came in 2009, when Shlomo Lipschitz decided to transfer the slaughterhouse to another individual, in return for an estimated tens of thousands of shekels a month. But the land where the slaughterhouse operated was never owned by Shlomo Lipschitz, and he had no right to transfer it to a third party, let alone charge rent.

Not only did the slaughterhouse get a new owner, it also got new dimensions. Documents and photographs show that in the years following the “change of ownership,” its area – which is located adjacent to private homes – expanded to 3,700 square meters – more than 10 times its original size. This was despite the lack of a building permit and in contravention of the master plan. This went by quietly. The association, headed by Binyamin Lipschitz, did not try to prevent the unapproved expansion or the transfer of the slaughterhouse to a third party.

Complaints about the issue were submitted to the regional council, which led to a legal proceeding in which the new operators of the slaughterhouse were convicted in a plea bargain of building without a permit and fined 65,000 shekels ($18,400). “This is a conviction only for the sake of appearances,” the oversight committee ordered by the registrar. “It is an example of the way private and illegitimate interests override proper administration and the interests of the residents of the village. The association’s lands have become a source of illegal enrichment for his family.”

Even though the owners of Birkat Ha’of, the company currently operating the slaughterhouse, have acknowledged during legal proceedings that they are renting the place, Lipschitz is still claiming that the issue is not the rental but rather of its operation by an external contractor. He is also insisting that his father’s expansion did not deviate from the area that was allotted to him, in contrast with what is visible in the pictures and is stated in the documents.

A family hall

The slaughterhouse is not the only case to which the elder and the younger Lipschitz are connected. There is also the Beit Shazar complex in the center of Kfar Chabad, where one resident has maintained an events hall for many years. In 2014, when the younger Lipschitz was still hanging on to all his hats, the Sdot Dan Regional Council decided to embark on a proceeding to expropriate the site (owned by the Israel Land Authority) “for public needs.”

Soon after, the owner of the events hall said he had sold management rights to a private events company – although, like in the slaughterhouse case, the operator cannot sell the building and is supposed to return it to Kfar Chabad’s association when it is no longer being used.

It then became clear that the owner of the private company was Shlomo Lipschitz. The association, headed at the time by his son, did not demand the return of the events hall to its ownership, and the elder Lipschitz’s commercial domain continued to produce profits for him.

In 2020, after complaints were filed about the commercial use of the land, the local planning and building committee convened to discuss the matter. “The master plan that was approved here was for public needs and what you are asking for is private needs,” said a representative of the committee, but her position was not accepted. As the legal advisor to the regional council explained to her: “Ultimately, it is my opinion that is decisive. You” – the members of the committee – “have no authority.”

And what was the council’s justification? The site was declared “a multi-purpose meeting hall for culture and religion, including a kitchen and a cafeteria.”

In a reply on behalf of Binyamin Lipschitz, Haaretz was told that he sees no conflict of interests in his participation in the meeting concerning expropriation of a site where there is a business owned by his father. “My client,” said his attorney, Yosef Lebenhertz, “serves as the representative of the inhabitants of Kfar Chabad on the council and it is incumbent upon him to see to their interests.” The council said in reply to Haaretz: “It is not a matter of a specific expropriation relative to the events hall, but rather a comprehensive expropriation of an area of 150 dunams” – 161,400 square feet – “and it conforms with the master plan. The expropriation does not confer rights to the properties to the owner of the business.” Shlomo Lipschitz directed Haaretz to his son’s response.

Self-service

If the affairs discussed here are not very well-known to the general public (to say the least), the following case – or at least its starting point – is a different story. This is the future transportation project that affects many inhabitants of Israel: the construction of a new interchange on Highway 1, designated for travelers to Terminal 3 at Ben-Gurion International Airport.

For the purpose of building the interchange (which will take years to build), in 2003 the state expropriated land from Kfar Chabad. In return, the association received lands on either side of Highway 1, each of them 10 dunams (107,600 square feet) in area, where it will be able to construct gas stations and commercial areas. Businessman Shmuel Dachner was involved in the first stages of the new development, but ultimately did not receive the rights to operate the future sites.

An agreement was signed by the association in 2010 with LDS Holdings, Ltd. It stipulated that the company would receive the land on a 50-year lease from the day the gas stations begin to operate (with an option for a 50-year extension). What will the association get in return? For the first 12 years, a relatively modest sum of $7,000 a month for each complex, and not a penny more. In the years after that, the sum is supposed to gradually increase, one per 12 years, eventually to $20,000.

In addition, the agreement stipulated that the association will receive 20 percent of the profits from each complex. However, a footnote was added: The profits will be calculated only after the return of the funding expenses for the project – and there is no knowing how long that will take. In any case, they will not exceed the sum of three monthly payments (i.e., if the payment is $7,000 a month, then up to $21,000).

The agreement is not limited in time, was not linked to any index and LDS Holdings was not required to pay any compensation if the project does not get underway. The association, however, is required to do so. It committed to paying a fine of 10 million shekels ($2.83 million) if the agreement is not upheld, “without proof of damages.”

“In the agreement a payment is required that does not reflect the real value of each complex,” states the oversight report. “This contract is liable to cause the association financial damage, beyond the fact that the commitment to a sum of 10 million shekels is beyond the association’s financial capability.”

A look at the contract reveals a single signature, Lipschitz’s, in contravention of the registrar’s regulations. Also hiding in the report is another detail: The signing of the contract was accompanied by the legal advisor to the association, Ben Zion Shefer. It later transpired that Shefer is also the director of LDS.

“The agreement was signed illegally and with a clear conflict of interest,” according to the critical report, which determined that “the association must implement a new contract legally, while examining the economic feasibility while ensuring that the rights are be reserved for the association, and subject to receiving an opinion by economic experts and proper legal accompaniment.” Shefer, for his part, said: “This is a transaction from two decades ago, and starting in 2004 there was no contract for representation between my firm and the Kfar Chabad committee and no compensation was received.”

A few days after the submission of the critical report, LDS sold its rights to the gas station to Oren Investments for 6.8 million shekels. The Kfar Chabad association did not benefit from the money. Lipschitz claimed in response that the agreements were signed legally with the approval of the committee. He also said that many years have passed since the signing of the first agreement on the subject, and that it remains nothing more than a piece of paper: “This is a vision that was not implemented, and in light of the trend of transition to electric cars, it looks like it won’t be implemented.”

A question of expropriation

There is another issue, which so far has not been discussed extensively – the owners of the land. All the land of Kfar Chabad is owned by the Israel Lands Authority, and the community effectively leases it. In light of the mismanagement in the village during Lipschitz’s tenure, in recent years the decision was made to suspend the leasing indefinitely, with the lands authority demanding that the town receive bureaucratic approval for its activity. These demands led to the latest chapter in the loveless relationship between the oversight committee and the regional council.

This chapter is being conducted in the Lod District Court. The oversight committee filed a lawsuit demanding 200 million shekels from the Sdot Dan Regional Council over the expropriation of the association’s land “for the public benefit” by the regional council over the past decade. The committee said that when the land was confiscated (about 150 dunams), Lipschitz promised that it would be for the benefit of the association rather than the regional council. That is proving to be inaccurate.

“It transpired that the previous committees were corrupt, scattered the plaintiff’s assets in a series of transactions and even saved some for themselves,” according to the lawsuit, with an accusing finger pointed at Lipschitz. “The same people abandoned the plaintiff’s assets and rights. This claim deals with one aspect out of many of government corruption, conflicts of interest, personal benefit from public assets, and an unacceptable use of government power to implement all these things.”

One of the unusual expropriations is a huge area of 90 dunams, on which commercial centers continue to operate. “Part of the area is being used by associates and part of it awaits the day of reckoning,” according to the lawsuit.

In February, Judge Zvi Dotan ruled in favor of the oversight committee in a different lawsuit, which involved the expropriation of an area on which there is a preschool complex. A perusal of the decision reveals more of what has been going on in the Haredi community in recent years. It turned out, for example, that the regional council and Lipschitz submitted to the court a black-and-white diagram of the area, which was colored in a dark color. The claim was that it was a public area that could be expropriated, and that on a map with color, such an area would be colored brown. Judge Dotan was dubious about the story, and asked for the original in color. It turned out that the color was not brown, and most of the area was “open private area,” meaning it cannot be expropriated.

“The respondents concealed this fact from the court,” which he took very seriously, he wrote. “I find it difficult to believe that the respondents did not know these facts at the time when they submitted the black-and-white diagram to the court. The same is true of Mr. Lipschitz, who submitted an affidavit that he has personal knowledge of the facts.”

In the same case, the regional council suddenly changed its story and claimed that the expropriation applied only to the public area. The judge was in no rush to believe the new claim either, and the council retracted its statement again. “It seems that these things speak for themselves,” the judge stated, “and the less said the better.”

Binyamin Lipschitz’s lawyer denied that he had done anything improper, stating that he did not grant land rights to his relatives or approve a transfer of rights, and that his consent was not required for the expropriation of land from the lands authority.

The lawyer further stated that “[a]ll the statements in the article originate in distorted information. This is a blood libel against him by his rivals, for the purpose of defaming his good name, in order to damage his status as an elected official, and in order to deter him from running once again in the upcoming election in the coming year.”

The Sdot Dan Regional Council said in response: “The regional council, in coordination with the association, worked to expropriate brown areas (public areas), as part of an overall and future systematic vision of the regional council and for future planning of the community of Kfar Chabad. In reference to that, the council did not complete the process of expropriation and even notified the association in writing of its intention to revoke the expropriation in coordination between the sides.”