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REVEALED: US OFFICIALS ARE INVESTING PUBLIC FUNDS IN ISRAELI BONDS IN
DEALS THAT RAISE ETHICS CONCERNS  
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Spencer Woodman, Joanna Robin
July 25, 2024
The Guardian
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_ State and local officials have invested $1.7bn of the public’s
money in Israel Bonds since 7 October. An investigation reveals
contacts between buyer and seller that experts say may cross a line _

Florida’s chief financial officer, Jimmy Patronis, and the Ohio
treasurer, Robert Sprague, Composite: AP; Getty Images

 

In August 2023, an executive at Israel Bonds – an organization that
sells Israeli bonds
[[link removed]] to
fund that nation’s government and buttress its military – emailed
the Ohio state treasurer’s office a sales pitch: could the state of
Ohio buy a batch of Israeli bonds for $5m?

In less than 40 minutes, the treasurer’s office approved the
purchase, bringing Ohio’s Israeli bond purchases to a total of $35m
for that year.

The fast deal was made between parties that were on exceptionally
friendly terms, according to a trove of emails and other records
obtained by the International Consortium of Investigative Journalists
[[link removed]] (ICIJ). And it was not the only matter being
discussed with Israel Bonds. At the same time that the Ohio treasurer,
Republican Robert Sprague, allocated millions in state funds to the
bond purchases, he was also making arrangements with the bond
seller’s business development team to join an exclusive guided trip
to Israel [[link removed]], scheduled for
later that year.

Six weeks after the Ohio treasurer’s $5m purchase, Hamas launched
its deadly 7 October attack, which killed nearly 1,200 people in
Israel. Another 250 were taken hostage.

In the following days, there was an outpouring of public support from
lawmakers at all levels of government in the United States for the
country’s closest ally in the Middle East. While Israel launched its
retaliatory bombardment of the Gaza
[[link removed]] Strip – and Joe Biden
shepherded billions in funding and military aid through Congress –
many state and local governments showed their support through a
lesser-known financial mechanism: investing in sovereign bonds issued
by Israel.

Since the start of the war, US states and municipalities have bought
at least $1.7bn
[[link removed]] in
Israeli bonds, with Democratic and Republican officials around the
country boasting of their investments demonstrating support for an
Israel at war.

This is an area of ethics where there are many potential conflicts of
interest

Richard W Painter of the University of Minnesota

Israel Bonds [[link removed]], which is
headquartered in New York, has meanwhile found itself caught up in a
global political maelstrom that followed the Hamas attack and the war
in Gaza. Activists have singled out Israel Bonds in demanding that
corporations and institutions divest from financial instruments seen
as supporting Israel’s government.

The more than 2,000 pages of emails and other records obtained by the
ICIJ, largely through records requests, offer an unprecedented glimpse
inside Israel Bonds’ extensive efforts to court public officials in
the US while delivering highly personalized sales pitches in a stream
of pro-Israel messaging. The documents show how some officials who buy
these bonds have gained access to an often-glitzy world that includes
gala dinners, cocktail celebrations and private meetings with top
Israeli leaders and senior military officials – and how these
dealings with Israel Bonds sometimes blurred the lines between private
life and official business.

In a statement to the ICIJ, a spokesperson for Israel Bonds said that
the bonds were a safe investment and that the group places importance
on building relationships with its customers, partly to keep
continuity if key decision-makers change due to elections or other
reasons. “Investors usually choose to invest for a simple reason:
Israeli bonds offer strong credit as well as strong and steady
returns,” Nathan Miller, a spokesperson for Israel Bonds, said.
“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’ money buys
government bonds, it’s usually a dry and straightforward process
with little interaction between the seller and buyer. Government
officials are generally discouraged from taking actions that could be
construed as creating a conflict of interest – that could cause
them, for instance, to favor certain assets for any reason other than
selecting the best investments available. Ethics experts say some
state officials may have crossed an ethical line in their dealings
with Israel Bonds.

Demonstrators protest the appearance of Bezalel Smotrich, the Israeli
finance minister, at the Israel Bonds gala in Washington DC on 12
March 2023. Photograph: Zuma Press/Alamy

“This is an area of ethics where there are many potential conflicts
of interest,” said Richard W Painter, a law professor at the
University of Minnesota and former chief White House ethics lawyer in
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 said, referring to actions of
public officials described in this article.

Miller said that “Israel Bonds’ marketing practices and events are
legitimate, appropriate and common practice” in the industry.

The ICIJ interviewed a half-dozen experts on state treasuries who
described a usual investment approach in which bonds were chosen based
on expected performance alone and where extensive interaction with
sellers was rare.

Bill Lockyer, a former treasurer of California, said his former office
bought bonds only in arms-length transactions. Early in his tenure, he
said, a major bank hosted a swanky event in Napa valley. Although he
attended the daytime activities, he recalled declining to accept a
hotel room or attend the bank’s dinner due to ethics concerns. “I
got my own motel and ate at the local Mexican restaurant. I didn’t
want to violate anything.”

In an era of war and rising concerns over antisemitism in the US and
abroad, Israel Bonds sees itself at the vanguard of securing the
future of the Jewish state. And given the historic scale of its
operations, which have raised $52bn over more than seven decades, and
the toll that the war has taken on the country’s economy, Israel
Bonds’ performance could have real consequences for Israel’s
future.

‘Now is the time to stand with Israel’

For decades after its launch in 1951, Israel Bonds, formally known as
the Development Corporation for Israel, primarily focused on
leveraging funds from the Jewish diaspora in the US to bolster the
fledgling Middle Eastern state. Israeli bonds have long been pitched
as gifts for celebrations such as birthdays and bar and batmitzvahs.
But the group – and its marketing strategy – has evolved, becoming
an important source of government financing as it courted banks and
other institutional investors, more recently including US states and
municipalities.

David Ben-Gurion, Israel’s first prime minister, and American
businessman Rudolf Sonneborn at the launch of the Israeli Bond
Campaign at Madison Square Garden in New York City in May
1951. Photograph: Archive Photos/Getty Images

“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,” said Mitu Gulati, a law professor specializing in
international debt finance at the University of Virginia School of
Law.

In the early weeks of the war, though, the Financial Times
[[link removed]] reported
that Israel quickly borrowed billions of dollars by issuing bonds
through privately negotiated deals, despite growing concerns about the
bonds’ risks. Over the past year, credit rating agencies have
downgraded Israeli government bonds due to growing political
instability, although the bonds are still considered well within
“investment grade territory”, according to Bloomberg.

But many US state and local governments were undeterred by the
turbulence. On 11 October, Sprague announced
[[link removed]] Ohio’s
plan to invest an additional $20m in Israeli bonds. “Now is the time
to stand with Israel,” he said in a statement.

Joseph Abruzzo, the Democratic chief financial officer of Palm Beach
county, one of Florida’s wealthiest counties, announced
an additional $160m investment in Israeli bonds
[[link removed]] in October alone.

On 12 March 2024, the Palm Beach county board of commissioners
approved Abruzzo’s request to lift the cap on the investments from
10% to 15% of the county’s portfolio. Two weeks later, Abruzzo
claimed, in a press conference
[[link removed]],
the county’s new title of “world’s largest investor in Israel
Bonds”, which accounted for roughly $700m of its $4.67bn portfolio.

In May, three Palm Beach county residents – all US citizens with
Palestinian heritage – sued Abruzzo for allegedly breaching his
fiduciary duty to taxpayers and for investing for “social,
ideological and political reasons”, which Florida banned under a
2023 law, according to court documents. One of the plaintiffs said in
the complaint that the Israel Defense Forces had killed 37 of his
family members since 7 October 2023.

“We expect the frivolous case brought against me in my capacity as
clerk will be quickly dismissed with prejudice,” Abruzzo, who is
also clerk of the circuit court, said.

Joseph Abruzzo, left, and then Florida state senator Wilton Simpson in
2016. Photograph: Zuma Press/Alamy

In December 2023, both Sprague and Abruzzo joined Israel Bonds’
newly formed government, industry and financial services leadership
group, alongside Illinois’s treasurer, a Democrat, and treasurers
from Pennsylvania and Oklahoma – both Republicans. The purpose of
the group was to help Israel Bonds strengthen ties with government and
other institutional investors in the US, according to media reports.
Sprague, the Ohio treasurer, was named chair.

High-level visits and access

The itinerary for Sprague’s planned October 2023 trip to Israel
reads like a luxury vacation mixed with an official state visit. In a
statement to the ICIJ, Sprague’s office said he had planned to pay
for the Israel trip with personal funds, some of which he had already
spent before the trip was canceled after Hamas’s 7 October 2023
attack on Israel.

A spokesperson for Sprague said there was nothing unusual or
inappropriate about his relationship with Israel Bonds and that every
Ohio treasurer since 1993 had invested in Israeli bonds, which have
“consistently proven to be a strong and reliable investment for the
state portfolio”. Since 2019, Sprague has bought $357.5m worth of
Israeli bonds on behalf of Ohio.

The trip to Israel was to begin with Sprague checking into a five-star
Jerusalem hotel before being shuttled to a gala dinner at a
subterranean venue with vaulted stone ceilings. The itinerary for the
days afterward included a trip to the City of David,
the controversial
[[link removed]] archaeological
site, for “an exclusive tour of places not yet open to the public,
including groundbreaking archeological artifacts”.

This morning, I announced plans to purchase $20 million in five-year,
fixed-rate @IsraelBonds
[[link removed]].

Read more: [link removed] pic.twitter.com/NAdh4yYAnk
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— Treasurer Robert Sprague (@OhioTreasurer) October 11, 2023
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The itinerary also included meetings with Israeli politicians, a wine
tasting at an Israeli vineyard, exclusive tours of two Israeli
military bases and a private, after-hours tour of Tel Aviv’s Museum
of the Jewish People to see the earliest copy of the Hebrew Bible. On
the final day of the trip, the itinerary listed a visit to Israel’s
presidential residence for a meeting with the Israeli president, Isaac
Herzog.

In a statement, Miller, the spokesperson for Israel Bonds, said that
only one public official – presumably Sprague – had registered for
the ultimately canceled 2023 trip, and that the official planned to
pay for the trip himself at the same rate as other attendees. No US
public officials have attended an Israel Bonds trip since 2019, Miller
said. He added that Israel Bonds “has frequently facilitated
missions to Israel for our leadership and investors” and called the
trips “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 personal email address on the registration form for
the bond seller’s trip to Israel, but his Ohio treasurer’s office
email account was used for at least some communications around the
planned trip.

This wasn’t the first time Israel Bonds had helped plan Sprague’s
travel. In March 2023, Israel Bonds hosted a conference in Washington
DC to commemorate the 75th anniversary of Israel’s founding. In an
email message to Sprague’s office, a sales executive for Israel
Bonds said he had reserved a hotel room for Sprague at the four-star
Grand Hyatt.

Republican candidate Robert Sprague gives his victory speech after
winning the Ohio treasurer position on 6 November 2018. Photograph:
Justin Merriman/Getty Images

The Washington event featured a cocktail reception, dinner and a Q&A
with Sprague and the Illinois treasurer, Michael Frerichs, for which
Israel Bonds provided Sprague questions in advance. Israel Bonds also
offered Sprague and Frerichs a private meeting with Israel’s finance
minister at the event, according to Israel Bonds emails to Sprague.
Frerichs did not respond to the ICIJ’s questions about the potential
meeting, and a spokesperson for Sprague said that it did not take
place.

Three months later, Sprague’s office – the Ohio treasurer’s
office – reimbursed Israel Bonds $727 for his hotel and meal
expenses at the event.

Late last year, Sprague traveled to Florida, where he attended an
Israel Bonds gala dinner in Palm Beach to present an award honoring
that state’s chief financial officer, Jimmy Patronis, for his
support of Israel Bonds, including the state’s major bond purchases.

A spokesperson for Sprague said the trip “included work not for
state business and that no public funds were used in paying for the
trip”. Instead, Sprague used campaign funds to pay for “travel
expenses and meals related to the trip”, the spokesperson said.

Sprague was already serving his second term as treasurer, and was
ineligible to run for a third given term limits on his position. His
office did not answer questions about what campaign activity took
place in Florida, but noted that the term limit did not preclude him
from running for a different office. Sprague’s campaign told the
ICIJ that he attended political meetings in Florida without providing
further details.

Conflicts of interest are ubiquitous in public life … If there is a
conflict suspected, then the public is owed an account

Archon Fung of Harvard University’s Kennedy School of Government

Ohio’s ethics law forbids public officials from taking substantial
gifts from an “improper source”, including from any person or
organization “seeking to do business with the agency”. Things of
substantial value, according to the website, include lavish meals,
entertainment activities and travel to exotic locations. Sprague’s
2023 financial disclosure form lists nothing related to Israel Bonds.

The office of the Illinois treasurer, Michael Frerichs, did not
respond to the ICIJ’s repeated requests for comment, which included
questions about who paid for his hotel and dining costs at the March
2023 Israel Bonds conference in Washington. (Illinois ethics laws
forbid a public official from accepting gifts of more than $100 total
in a calendar year from anyone who does business with the state.)

Archon Fung, a professor focusing on democratic governance at Harvard
University’s Kennedy School of Government, said that transparency is
key for officials, who naturally face a variety of potential ethical
pitfalls. “Conflicts of interest are ubiquitous in public life,”
Fung said. “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 said it paid the expenses for speakers at the Washington
event, 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, the Israel Bonds spokesperson, said in a statement.
“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.”

Florida’s growing commitment

Few states, if any, have formed the kind of partnership with Israel
Bonds that Florida has. The Sunshine state has a treasury holding more
than a quarter-billion dollars worth of the bonds. As the state’s
chief financial officer, Patronis, who has led a major drive to invest
Florida’s money in Israeli bonds, has been recognized by Israel
Bonds several times in recent years.

“CFO Patronis is committed to providing the best return on
investment for taxpayers’ dollars,” Devin Galetta, a spokesperson
for Patronis, told the ICIJ in an email, adding that four Florida
state treasurers had purchased Israeli bonds. “Since 2001, Florida
has earned approximately $29m in interest from state of Israel
bonds.”

In 2018, after Patronis began dramatically increasing the state’s
holdings of Israeli bonds, the bond seller honored him at a
celebration during which he was presented a plaque by Israel Defense
Force Maj Gen Mickey Edelstein, then the nation’s military attache
to the United States.

Florida’s chief financial officer, Jimmy Patronis, at a commerce
committee meeting on 8 March 2023 at the state capitol in
Tallahassee. Photograph: Phil Sears/AP

The following year, in 2019, Patronis went on a trip to Israel that
was reported by the Tampa Bay Times to be partly sponsored by Israel
Bonds, which said it hosted a meal for the delegation. Patronis and a
delegation of Florida politicians and business people were joined on
the trip by two Israel Bonds executives, according to an official
itinerary of the trip.

In 2020, Israel Bonds held a celebration in which Patronis was honored
for promoting state legislation that enshrined a commitment to
continue buying Israeli bonds. In 2022, Israel Bonds hosted Patronis
as a special guest at its annual Prime Minister’s Circle Gala in
Boca Raton. And last year, the bond seller made Patronis the main
attraction at the same gala event, presenting him with a top honor
called the Israel Bonds Leadership award. This was the same December
event that Sprague attended.

In response to the ICIJ’s questions about who paid for Patronis’s
costs around Israel Bonds events, Galetta responded only that “all
appropriate statutory requirements have been met”.

Warnings of risk

Last year, Democracy for the Arab World Now, or Dawn, a non-profit
organization that has accused Israel of human rights violations,
submitted a complaint to the US Department of Justice alleging that
Israel Bonds appeared to be violating a federal law designed to keep
tabs on foreign influence operations in the US. The complaint urged
the justice department to investigate whether Israel Bonds broke the
law by not registering as a foreign agent.

Miller called Dawn’s letter “false and defamatory” and said
Israel Bonds “is not a foreign agent, and never has been”.

Since 7 October Israel Bonds has raised a staggering $3bn worldwide.
At the same time, the group has attracted new attention from activists
seeking divestments from Israel. In May, the advocacy group Jewish
Voice for Peace protested outside Israel Bonds’ Philadelphia
offices, shutting down city streets and demanding government offices
withdraw investments in Israel.

As previously reported by the Guardian
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many of the US states that answered the call to buy Israeli bonds are
the same ones that have railed loudly against investment strategies
based on social and environmental issues, such as the climate crisis.
The Guardian found that the majority of state financial officials who
invested millions in Israeli bonds in the first month of the war
belonged to a conservative group that is now lobbying to keep “the
left” out of state treasuries.

In mid-2021, Thomas Clancy, the then chief investment officer of
Pennsylvania’s treasurer, Stacy Garrity, cautioned that Israeli
bonds could be a risky investment for the state, according to emails
obtained by the ICIJ. Clancy emphasized Israel’s political
instability and the country being “frequently involved in military
violence”. He also noted that the bonds are not traded on the open
market – meaning, regardless of headwinds the nation may face,
buyers are stuck with the bonds until they pay out. He proposed
“investing in more liquid securities, with fewer risks to the
investment capital”.

His advice was not followed. Erik Arneson, a spokesperson for
Pennsylvania’s treasury department, pointed out in an email to the
ICIJ that the chief investment 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 also
emphasized that Israel Bonds has never defaulted on its payments.

On 10 October 2023, Pennsylvania’s new chief investment officer
conveyed an opportunity from Israel Bonds for the state to make an
additional investment “given everything taking place”. It took
Garrity just an hour to confirm that she would “love” to
temporarily increase the state’s investment in Israel bonds by $10m.
By 12 October, she publicly pledged
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double that amount to $20m worth of bonds.

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_THIS STORY WAS CO-PUBLISHED WITH THE INTERNATIONAL CONSORTIUM OF
INVESTIGATIVE JOURNALISTS_

_SPENCER WOODMAN is a reporter for ICIJ, based in New York. His work
has appeared in The New York Times, The Washington Post, NBC News,
Associated Press, The Guardian, Rolling Stone and The Intercept._

_JOANNA ROBIN is ICIJ's digital editor._

_Prior to ICIJ, Jo was the digital journalist and producer for the
Australian public broadcaster’s bureau in Washington, D.C. She
covered U.S. politics and culture for ABC News
[[link removed]], reporting on the 2022 midterm
elections, the end of Roe v. Wade, the Jan. 6 hearings, and more._

_In 2021, Jo graduated with honors from Columbia University Graduate
School of Journalism in New York, and her master’s project, an
investigation into a troubled insurance sales firm, was published
by The New Republic [[link removed]]. She previously worked
for Broadsheet and Mamamia in Melbourne, where she first studied
journalism at RMIT University._

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* Israel
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* public funding
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* ethics
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* Florida
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* Ohio
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* Israel Bonds
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