Police Arrest Workers of Israeli Cyber Group Ability on Suspicion They Violated Defense Export Law

A number of suspects associated with two of the cyber group's subsidiaries are facing charges of fraud, smuggling and money-laundering

Gur Megiddo
Gur Megiddo
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The Ability group specializes in intelligence technology and cyber-security systems for governments, army and police
The Ability group specializes in intelligence technology and cyber-security systems for governments, army and policeCredit: KACPER PEMPEL/Reuters
Gur Megiddo
Gur Megiddo

Israel Police arrested a number of suspects associated with two Ability group cyber companies and raided offices on Sunday morning on charges of fraud, smuggling and money-laundering.

The court imposed a gag order on the identity of the suspects and many of the details of the investigation.

Haaretz Weekly Ep. 40Credit: Haaretz

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The two subsidiaries of Ability Inc. under suspicion are Ability Computer & Software Industries and Ability Security Systems.

The investigation began with a Defense Ministry probe into suspicions that the Ability group had broken the law governing security-related exports from Israel. The police investigation is being handled by the unit for International Crime Investigations, in collaboration with the Director of Security of the Defense Establishment.

Shares of the publicly-traded Ability Corporation were swinging wildly – but far below the flat line – in extremely choppy late morning trading on the Tel Aviv Stock Exchange.

The Ability group, founded by Anatoly Hurgin and Alexander Aurovsky, specializes in intelligence technology and cyber security systems for governments, militaries and police. Among other things, the company’s systems enable encrypted conversations to be monitored, incoming and outgoing messages to be recorded, instruments to be identified by their country of origin, and phone numbers to be identified.

Six months ago, the Ability subsidiaries were reported to have broken the law by marketing and exporting eavesdropping and geolocation systems without a license. Following a hearing, the Defense Ministry suspended the subsidiaries from the registry of defense export companies and, according to reports in March, revoked their export license.

In June, the U.S. Securities and Exchange Commission notified Ability that it intends to pursue enforcement action following an anti-fraud violation investigation that began in 2017 about Ability’s 2015 merger with shelf company Cambridge Capital Acquisition Corporation.

In 2017, five independent directors quit the Ability Inc. board (Amnon Dick, Efraim Halevy – a former head of Mossad, Amos Malka – a former general, Meir Moshe and Shalom Singer).

The directors believed Ability should include a going-concern warning in its financial statement to advise shareholders that the company’s future was in peril unless the controlling shareholders injected capital.

The controlling shareholders declined to pony up money or publish a going-concern warning. In light of their departure, Hurgin said, “Alexander Aurovsky and I, who together co-founded Ability and hold a majority of its shares, remain committed to the company.”

It was through the merger with Cambridge that Ability listed for trading on NASDAQ in 2015. At the time it had $81 million in cash. It dual-listed on the Tel Aviv Stock Exchange in January 2016, but had troublesome relations with Israeli investors. In its 2015 financial statement, the first as a public company, Ability had to admit that it had to restate its results for 2014 and 2015.

Ability began Sunday trading at a market cap of just 17 million shekels. Its third-quarter report, its last, presented revenues of $437,000, down 57% from the parallel nine months of 2017.

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