UK judge denies bail for couple at center of 'Trojan horse' affair

A British judge denied bail Friday to a couple wanted by Israel for alleged involvement in the country's biggest business scandal in decades - an alleged high-tech industrial spying ring.

District Judge Anthony Evans ordered Michael and Ruth Haephrati held without bail until a next hearing on July 1. Israel is seeking to extradite the two suspects, who did not speak during the hearing at Bow Street Magistrates Court, only nodding to confirm their dates of birth.

The Haephratis' defense lawyer had said it was unnecessary to hold them without bail, since they had given up their travel documents. He said they had not seen one another or their daughter, who is being cared for by relatives, since their arrest last week.

Prosecutor John Hardy, acting for the Israeli government, said detention was necessary because Israel would not be able to extradite Michael Haephrati, who is German, if he flees to Germany.

Because the couple's alleged crimes were committed in cyberspace, Hardy said, "they could go anywhere in the world" and continue those activities.

The Haephratis are at the center of a scandal that has shaken Israel's business world.

Top Israeli blue chip companies are suspected of using illicit surveillance software to steal information from their rivals and enemies. Alleged victims include the local operations of the Ace hardware chain and Hewlett-Packard Co.

Police said more than 20 people had been arrested.

Investigators believe Michael Haephrati, 41, designed the spying program and sold customized copies to three Israeli private investigators.

The private investigators allegedly then sneaked the program into the computers of their clients' major competitors via seemingly benign e-mail attachments.

Industrial spies may have stolen defense dataHackers who broke into the computers of some of Israel's biggest industrial corporations also stole highly sensitive defense data, a senior police investigator said Friday.

The investigator, Nir Nateev of the police cybercrime unit, declined to give details.

The Hebrew daily Yedioth Ahronoth said civilian defense contractors were hit and there was a suspicion that politicians may also have been targeted. Israeli TV reported that the defense data was taken from firms producing aerial surveillance drones, or unmanned aircraft.

The revelations were the latest twist in an epic business scandal, in which Israeli blue chip companies are suspected of using illicit surveillance software to steal information from their rivals and enemies.

On Thursday, Pelephone CEO Jacob Gelbard was questioned at the offices of the Tel Aviv fraud squad in connection with the affair.

Detectives showed Gelbard documents that had been seized from Pelephone's offices tying it to possible industrial espionage. Gelbard denied any involvement, and said that he had no knowledge regarding the documents.

Earlier in the week, executives from Partner Communications had told police that Pelephone had spied on their computers using Trojan horse spyware.

On Thursday, Yes satellite communications CEO Ofer Bloch also visited the Tel Aviv fraud squad offices to answer questions regarding his company's possible involvement in industrial spying. Bloch also denied any involvement in the affair.

Orbotech and Simga Shipping, who also suspected that they had been spied on - although not by Pelephone - filed police complaints Thursday morning.

Ilan Bombach, chairman of the Israel Bar Association's Tel Aviv District Committee, was also called into the fraud squad offices. Investigators told him that they had documents which had been illegally removed from several law offices using Trojan horse software. As far as is known, the documents all concerned civilian matters.

Bombach called the phenomenon "infuriating." While breaking into computers is problematic, "breaking into lawyers' computers is much more problematic because clients come to lawyers with the assurance that whatever they say will remain confidential," Bombach said.

Attorney Yehonatan Meshulam was then updated by police about documents discovered on computers seized by the fraud squad. Meshulam told reporters that the documents concerned a civil suit filed by 33 clients against a building contractor. "It is a most serious matter, and I hope that those responsible will be caught and brought to justice," said Meshulam.

Police are now investigating whether the lawyers representing the contractor stand behind the espionage.

Also Thursday, the Tel Aviv Magistrate's Court extended the remand for eight days of ten private investigators suspected of using spyware. It also extended the remand of Yitzhak Dekel and Ofer Fried from the Krochmal agency, by four days.