A group of private eyes who applied spyware to industrial espionage have been jailed in Israel, in the latest twist to a long-running high-profile investigation.

Four members of the Israeli Modi'in Ezrahi private investigation firm were sentenced on Monday after they were found guilty of using Trojan malware to steal commercially sensitive information from their clients' competitors.

The Trojan, written and marketed by London-based couple Michael and Ruth Haephrati, was reportedly used to spy on a variety of organisations including the HOT cable television group and a PR agency whose clients include Israel's second biggest mobile operator, Partner Communications.

Asaf Zlotovsky, a manager at the Modi'in Ezrahi detective firm, was jailed for 19 months. Two other employees, Haim Zissman and Ron Barhoum, were sent to prison for 18 and nine months respectively. The firm's former chief exec, Yitzhak Rett, the victim of an apparent accident when he fell down a stairwell during a break in police questioning back in 2005, escaped a jail sentence under a plea bargaining agreement. Rett was fined 250,000 Israeli Shekels (£36,500) and ordered to serve ten months' probation over his involvement in the scam.

Three other defendants were heavily fined and their licences as private investigators were revoked by a Tel Aviv court, The Jerusalem Post reports.

Michael Haephrati, who honed his computer skills during three years' military service in the Israeli army, and his wife Ruth were fined and sentenced to jail by an Israeli court for their involvement in the case back in 2006. Michael was jailed for two years and his wife for four years after pleading guilty to the scam, and following their extradition from the UK in January 2006.

Modi'in Ezrahi is the largest of three private investigation firms implicated in the case. The case against Modi'in Ezrahi is the first to reach its conclusion. It's unclear whether or not further prosecutions against the two other detective agencies, Krochmal Special Investigations and Pelosoff-Balali, are likely to follow.

Graham Cluley, senior technology consultant at Sophos, said that social engineering tactics specific to individual victims were used to infect PCs. Infected CDs were sent through the post to prospective marks, he added.

Cluley notes that the case illustrates the importance of firms hiring private investigators to seek assurances that they will refrain from behaving unethically or illegally.

"Most detective agencies would probably balk at the thought of breaking into a company's offices to spy on them, but maybe some feel it is more acceptable to do the spying through malware? A strong message needs to be sent that using spyware to gain competitive advantage over competitors is not only unacceptable, it's against the law," Cluley told El Reg.

The identity of the spyware used in the case is unknown, but earlier reports suggest the Trojan was originally used to spy on Israeli thriller writer Amnon Jackont, the husband of Michael Haephrati's ex-partner, radio show hostess Varda Raziel-Jackont. Jackont's discovery of a Trojan on his PC led to a police investigation that eventually led back to the Haephratis and a much larger plot.

More background on the genesis of the case can be found in a New York Times story here. There's a full rundown of the runners and riders in a Globe story here. ®