3Com Chairman Caught in Dispute Over Israeli Firms

A boardroom squabble over whether Eric Benhamou, chairman and chief executive of the giant 3Com Corp., is involved with a tiny Los Angeles technology incubator has sparked allegations of death threats, fraudulent overseas money transfers and the sale of companies that may never have existed.

The controversy has crippled Yellowave Corp., a former operator of discount hair salons, which has reinvented itself as an incubator for Israeli technology companies.

And it has sucked Benhamou, a respected executive who also is chairman of Palm Inc., into a tangled web that has resulted in a preliminary injunction and restraining order against two of his childhood friends and their Israeli associates.

None of the parties has alleged impropriety on Benhamou’s part. Instead, his name may have been used in an elaborate fraud, according to documents filed with the U.S. District Court in Los Angeles.

Last month, Yellowave announced it acquired in a stock transaction four Israeli companies controlled by Benhamou and his longtime friend, Prosper Abitbol, through a business called Newtech Broadwidth Ltd. As part of the deal, Abitbol became chairman and chief executive of Yellowave. His wife, Israeli attorney Myriam Abitbol, and two Israeli associates joined the five-member Yellowave board. Benhamou was named to an advisory board.

It was the last in a series of rosy announcements over the last several months that helped push Yellowave’s stock price up more than 2,000% to a high of $24 on July 24 before a gradual slide. On Monday, its shares closed down 6 cents at $7.38 on the American Stock Exchange.

Company officials touted Benhamou’s association as representative of its high-powered contacts in the tech world.

But according to federal court documents and the restraining order issued last week by U.S. District Judge Ronald Lew, it appeared that Benhamou had no link to the Israeli companies.

In an Aug. 11 letter to Yellowave Chief Operating Officer Laura Ballegeer, Benhamou said he had “no formal association” with Newtech or any “formal business relationship” with Abitbol. Ballegeer is seeking to unwind the acquisitions.

But on Monday, Benhamou, contacted in Ireland through a spokesman, said he did own shares in Israel Development Broadcast Corp., an Abitbol company that owns Newtech.

Abitbol sent Benhamou a business plan for Israel Development. Benhamou reviewed the plan, made some suggestions and sent it back. In return Abitbol issued him shares in the company.

Benhamou “never attended a board or management meeting, has never participated in how the company was run and has never invested any of his own money in the company,” said Brian Johnson, a 3Com spokesman.

Lew issued the restraining order after Ballegeer, the lone director not associated with Abitbol, sought to regain control of Yellowave on behalf of shareholders and stop attempts by the Abitbols to transfer company funds overseas. She was one of the architects of its plan to become a technology incubator.

Lew said in his ruling that there “is a strong likelihood” that Abitbol, his wife and two associates “will use their fraudulently obtained authority . . . to drain [Yellowave’s] assets.”

Lew blocked their access to $2.7 million in Yellowave’s accounts and ordered the defendants to appear in court Monday.

In arguing for the injunction and restraining order, Yellowave’s attorneys said that the Abitbols attempted to transfer the money from accounts at Prudential Securities, Merrill Lynch and Imperial Bank to Israel. Their efforts were thwarted because of signatory issues and caution on the part of the financial institutions, according to court records.

Additionally, in a letter to Benhamou seeking confirmation of his involvement with the company, Ballegeer said Abitbol “threatened to kill” her, her children and former Chairman Ron Oren, according to court records.

Reached at midnight in Israel, Abitbol said in Hebrew that the allegations were “not the truth.”

Abitbol said he will be able to issue a more complete response today. And he reaffirmed Benhamou’s connection to the company.

Abitbol said that Israeli corporate records will show that Benhamou is a director and shareholder of Israel Development Broadcast Corp. Abitbol said that Israel Development owned Newtech, the parent company of the businesses sold to Yellowave. The stock swap gave Abitbol and his partners control of Yellowave.

Oren first met Abitbol in June and became interested in Newtech because of its purported link to Benhamou and Abitbol’s representation that the company owned an Israeli satellite television license as well as promising Internet technology through its subsidiaries. According to Oren, Abitbol’s claims were confirmed by Avi Tolodano, a partner at the Tel Aviv office of Ernst & Young, the global accounting firm. Tolodano later said he was a victim of Abitbol’s “misrepresentations,” according to court documents.

Oren signed a merger agreement acquiring Newtech on July 5, contingent on Abitbol providing documentation of his claims, according to court records. After the merger was completed, Yellowave never received the expected documentation, Oren told the court.

Yellowave hired Moshe Korman, an attorney in Israel, to investigate Abitbol’s claims. In a fax to Oren on Wednesday, Korman reported that the four companies reportedly owned by Newtech were not registered as businesses, according to Israeli records. Moreover, he said none had the satellite TV license.

Ballegeer and Oren then filed requests seeking the injunction and restraining order and a lawsuit seeking to recover civil damages from Abitbol and to reverse the merger.