- The Washington Times - Sunday, May 29, 2005

JERUSALEM — Israeli authorities have cracked a large industrial-espionage ring, in which top business executives and investigators reputedly used sophisticated software to infiltrate their competitors’ computers, police said yesterday.

The probe implicated car importers, cell-phone providers and the nation’s main satellite-television company. Police said they were still sifting through documents and computer files to figure out the extent of the damage.

“This is one of the gravest scandals in … industrial and market espionage in Israel,” said police Superintendent Roni Hindi, head of the special fraud-investigation team.

Police said 18 persons are in custody, including the software programmers, an Israeli couple living in London.

A computer programmer developed the software, called a “Trojan horse,” on behalf of three of Israel’s largest private investigation firms, police said. The private investigators sneaked the program into the computers of their clients’ major competitors via seemingly benign e-mail attachments.

The Trojan horse gave the private investigators complete access — over the Internet — to their victims’ computers, police said.

Authorities accused a company that imports Volvos of spying on a Volkswagen importer. Two cell-phone companies, Cellcom and Pele-phone, were accused of spying on Partner, the local branch of Orange, police said.

Other victims included top cable-TV company HOT, a leading bottled-water company and the local branch of Ace Hardware Corp.

Victims lost competitive bids and thousands of customers because of the spying, police said.

Authorities were unable to estimate the extent of the damage from the espionage, but “it appears we are talking about a lot of money,” Mr. Hindi said. “There are also companies abroad that were damaged. This is still being investigated.”

Many of the persons arrested denied breaking the law. The case was under a gag order until yesterday.

“The software is totally legal. The question is if the use that my client made of the software was illegal — and the answer is definitely not,” said Ofir Katz Neriah, an attorney for one of the suspects.

Those arrested included a top executive from the YES satellite-television company, security officials who worked for Pele-Phone and Cellcom, and several private investigators. Shares in Bezeq, which owns Pele-Phone and controls YES, dropped as much as 3.4 percent on the Tel Aviv exchange after release of the news.

The program reputedly was designed by Michael Haephrati, 41, who was arrested last week in Britain with his wife, Ruth Brier-Haephrati, 28, police said. The two were detained pending an extradition hearing Friday.

Police were tipped off to the espionage when author Amnon Jackont discovered that excerpts of a book he was writing were showing up on the Internet. More documents from his computer began appearing online, and someone tried to use his bank details to make transactions.

Mr. Jackont realized his computer had been invaded and told police that he suspected the spy was his stepdaughter’s ex-husband — Mr. Haephrati.

Rami Shalmor, a top executive at Shalmor Avnon Amichai advertising, said the program was planted on the computer of one of his account executives and was in their system for two or three weeks before being discovered.

“Even if it is planted for 10 minutes, it is liable to wreak terrible damage by draining all the information on the computer,” Mr. Shalmor told Army Radio.

Mr. Shalmor said the spies, whom he declined to identify, tried to find out about marketing campaigns of their competitors.

He said he had no idea how much damage was done, but added: “I imagine there will be civil suits here.”

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