Former Employees of Defunct CT Motion Accused of Theft

Last Thursday, following a raid carried out by the receiver for CT Motion, attorney Adi Fogel, a criminal complaint was filed against several former employees of the high-tech company. According to the complaint and claims made by Fogel, CT Motion employees conspired with one of the company's large clients, PinPoint, a Chinese company operating out of Hong Kong, to cause CT Motion's collapse.

The report that Fogel submitted to the court Sunday shows that PinPoint violated its commitment to pay CT Motion $1 million with the purpose of taking control of technology developed by the company, together with former CT Motion employees.

Fogel filed the complaint with the fraud office in conjunction with attorney Hagai Shalev, the legal representative of Bank Leumi, CT Motion's only insured creditor. In their report, the two lawyers claim that CT Motion's business collapsed after payments the company was supposed to receive from PinPoint failed to arrive.

Fogel told the court that he suspects that the former CT Motion employees planned PinPoint's non-payment of its commitment to CT Motion such that CT Motion's ensuing financial difficulties would lead to the company's closure. Immediately after CT Motion closed, a new company, Yayo Technologies, opened and a number of CT Motion's workers transferred to it. Yayo's shares are registered in the Virgin Islands, but during Sunday's court hearing, PinPoint's Chinese representatives confirmed that Yayo was its subsidiary. Yayo operates from a private home on Kehilat Vilna St. in Ramat Hasharon.

CT Motion developed a system to provide location-based added-value services to cellular telephone companies. The Chinese company provides added-value services to cellular companies based on CT Motion's technology. One CT Motion shareholder who chose to remain anonymous said that PinPoint was pleased with the system it had purchased in 2001 and had decided to order three more systems in 2002 so as to expand its services throughout the Far East. After settling part of its bill, however, PinPoint stopped paying.

Following PinPoint's notification that it was halting payments, some of CT Motion's employees petitioned the court to liquidate the company. The workers offered to purchase the company for a few hundred thousand dollars.

The shareholder relates that in the days between the liquidation petition and the appointment of a liquidator, a number of employees asked Bank Leumi, which controlled what went on at the company at the time, for permission to enter the offices in order to provide technical support for one of CT Motion's important clients in France. After consulting with the shareholders, the bank allowed the employees access to the offices. The shareholder believes that improper activities were conducted at the company during that time.

The shareholder says that CT Motion was one of the start-ups that had the best chances for success, with revenues from clients from all over the world and no need for additional rounds of capital raising.

Following the disclosures that raised suspicions of sabotage during the liquidation, the court gave Fogel two weeks in which to conduct a search for and obtain the materials that had been copied. Fogel notes in the report he submitted on Sunday that his search was disrupted every step of the way, including in the form of verbal and physical threats from some of the workers. Fogel wrote that while obtaining the materials, "strong evidence was found indicating that the workers took essential property belonging to the company, including software programs that it had developed."

Fogel also found source codes for the software in computers that had been used by some of the employees. Fogel obtained documents that attest to the provision of support and development services by former CT Motion employees to PinPoint, using CT Motion's property.

The chief scientist at the Science Ministry has been kept abreast of all the details of the investigation. The ministry, which provided the company with some $200,000 in funding, is apparently considering opening a criminal investigation into the matter.

CT Motion was founded in 1988 by Rafi Katz and Yair Gaon and closed in 2002. The company raised a total of $14 million. Shareholders include Nisco High-Tech of the Nisco Group, Poalim Capital Markets, Kardan Technologies and venture capital funds Vertex and Neuron. The company was also involved in the development of systems for integrating and providing location-based services to cellular communications providers. In its heyday, CT Motion had 80 employees. Its highest market value during a round of fund raising was $80-100 million. In 2001, CT Motion raised capital based on a market value of $35 million.