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New board members proposed for Israel's Bezeq amid police investigation

(Corrects to read daughter-in-law (not wife), paragraph 3)

TEL AVIV, Feb 26 (Reuters) - The parent company of Bezeq Israel Telecom is seeking to appoint new members to the company's board to replace three directors who submitted resignations amid an ongoing police investigation of fraud and other securities offences.

The resignations were sought by minority shareholders in the wake of the investigation started by Israel's markets regulator last year. The probe threatens to create a power vacuum at Israel's largest telecoms group.

Former Bezeq chairman Shaul Elovitch said he will step down from the board as will his son and daughter-in-law, parent company B Communications (Bcom) said on Monday.

Elovitch, a family friend of Prime Minister Benjamin Netanyahu who controls Bezeq through Bcom parent Eurocom, was arrested last week along with his wife and son. They are in police custody but will be brought to court on Monday morning for a hearing on their request to be released.

They all deny any wrongdoing.

Bcom is proposing former Bezeq chairman Shlomo Rodav and Doron Turgeman -- CEO of Eurocom subsidiary Internet Gold -- to the board.

In addition, a group of investors led by U.S.-Israeli businessman Naty Saidoff has proposed biotechnology executive Tamir Cohen to the board. An offer for the indebted Eurocom from Saidoff's group has been accepted by Eurocom's creditors and submitted to court for approval.

Elovitch last June temporarily stepped down as chairman of Bezeq and was replaced by acting chairman David Granot.

Israeli media had reported on Sunday that Chief Executive Stella Handler, who is also in police custody, would be replaced at least temporarily, but there has been no such decision.

She and another company official were arrested last week in connection with the Israel Securities Authority's (ISA) investigation of Bezeq over allegations including fraud, bribery and securities offences.

They are in police custody and will also be brought to court on Monday.

They also deny any wrongdoing.

Amid a 29 percent drop in Bezeq's shares in 2017, activist investor Elliott, which has a 4.8 percent stake, has called for the resignation of all Bezeq directors implicated in the investigation and those affiliated with Eurocom. (Reporting by Tova Cohen; Editing by Steven Scheer)