Spy Satellite Lands Israel in U.S. Court

Investors in an Israeli satellite company are asking an American judge to punish the company for refusing to provide access to the spacecraft and their sensitive imagery to the Venezuelan strongman, Hugo Chavez, who is an ally of Israel's enemy Iran.

At issue is a leading satellite imagery company, jointly owned by private investors and an Israeli government-run defense manufacturer. The company, called ImageSat, rents out spy satellites to foreign countries that don't have their own.

The investors claim that the Israeli-owned part of the company is killing off several profitable contracts because of diplomatic considerations. For example, the suit says that the Israeli Ministry of Defense pressured the company to renege on a multimillion-dollar contract with Venezuela.

President Chavez has forged an alliance with Iran in recent years, to the consternation of both America and Israel.

The suit also claims that the venture canceled a contract with Angola so that it could sell to South Africa, historically another Israeli ally. Politics got in the way of business with Russia and Taiwan as well, the suit claims.

As the suit moves forward, it could disclose back-channel communications between Israel and America.

The nine investors who brought the suit are mostly American and Israeli, and many of them were founding partners of ImageSat. The Americans are Stephen M. Wilson, Michael Morris, Joel Levine, Morris Talansky and Abraham Moshel. The Israeli investors are Moshe Bar-Lev, Patrick Rosenbaum and Haim Yifrah. A Canadian, Albert Reichmann, is another investor listed.

They are suing for more than $6 billion in the U.S. District Court in Manhattan before Judge Laura Taylor Swain. Ira Matetsky of Ganfer & Shore filed the suit on behalf of the plaintiffs. An initial court date is set for October 12.

In essence, the suit shows a rift between the private investors and the government-run defense company, Israel Aerospace Industries. The investors wanted the satellite company to be profitable. The defense manufacturer wanted it be patriotic, the suit claims.

Stephen Wilson, an American investor and the lead plaintiff in the case, founded ImageSat in 1994. At the time, Israel and its defense manufacturer were "desperately seeking new sources of financing for the Israeli military space program," so they signed on to the idea and accepted the fact that the company would have to be apolitical, the suit says.

From the very beginning, ImageSat's political independence was a "fundamental, indeed essential, element of its business plan," the suit says.

The only limit imposed by the Israeli Ministry of Defense was that ImageSat could not sell satellites to any country within 1,550 miles of Israel, a radius that includes nations that have fought wars against Israel, such as Lebanon and Syria. Israel also forbade ImageSat from selling to "rogue states" as defined by America and Israel, consisting of Cuba, Iran, and North Korea.

At first, Israel lived up to its promise to keep its hands off ImageSat, according to the suit. In 1998, to prove that ImageSat would be allowed to function independently, the Israeli Ministry of Defense issued licenses allowing ImageSat to sell to 60 countries, including Venezuela in 1998.

The Ministry of Defense even refused a request by the American government to suspend ImageSat's business with India after that country tested a nuclear weapon in 1998, according to the suit.

But after 2000, Israel Aerospace Industries deserted its hands-off approach and began steering the company according to Israel's geopolitical interests, the suit says.

Venezuela provides the most blatant example of political meddling described in the suit. Mr. Wilson began pitching a deal to the Venezuelan government in 1999 and even moved to the country in 2001. By 2002, he had convinced Caracas to rent spy satellites from ImageSat for a price of $18 million or more a year, the suit says.

But while Mr. Wilson was on vacation in 2002, Israel Aerospace Industries halted the deal, the suit alleges. The company convinced Mr. Wilson to delay his return to Caracas so that he wouldn't find out that the deal had been secretly killed, the suit says. Mr. Wilson says he only found out the truth when a Venezuelan Air Force general told him the story.

"Defendants were motivated by the deteriorating international relationship between the United States and Venezuela and Israel's desire to improve and maintain its historically good relations with the United States," the suit says.

A spokesman for Israel Aerospace Industries could not be reached for comment.