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The Israeli press is brimming with news about retired Brigadier General Itzhak Yaakov. He headed the Israeli army's research and development unit between 1963 and 1973, but that isn't the story. The story is that he allegedly compromised the state's security, or - spied.

After a gag order was rescinded,


reports that Yaakov has been arrested in March on changes of aggravated espionage with intent to harm the security of the state. (Yes, the story was first revealed by The Sunday Times, which was not restricted by Israeli gag orders.)

Yaakov did not lead a dull life. He is considered one of the fathers of military R&D in Israel and to have brought in venture capital investment from U.S. companies. Less well known is the fact that he also briefly served as chairman of the Israeli data-storage company

Constellation 3D Data Storage Technology

(Nasdaq:CDDD). His stint there did not end well.

Yaakov was named chairman on April 19, 1999. His recruitment was based on his indisputable skills in the military and in private business, and on his experience with startups.

The romance lasted less than a year. In early 2000 Yaakov walked away. Constellation 3D may have flaunted its celebrated chairman beforehand, but it refuses to have anything to do with him today. It won't even comment properly.

"I strongly request that you speak to no one in the company. They have all been briefed to put all calls in this matter through to me, since I am the only one authorized to discuss the matter," warned Craig Weiner, the company's general counsel in New York, in response to a request to speak with Dr. Eugene Levich, the company's founder and CEO, not in the office at that time.

Weiner discloses nothing about how the contact with Yatzo - his nickname for Yaakov - was made initially, but he is happy to discuss the reason for his departure: "Yaakov did not share our vision on the company's direction. His way of thinking is out of line with our times, which is why Yatzo was dismissed."

1.1% equity interest

Yatzo however also owns a stake in C3D. He established a company back in 1985 called Yaakov Consultants, which he fully owns. The company bought a 1.1% stake in in C3D's share capital.

Under the agreement between C3D and Yaakov Consultants, Yaakov's company was to receive a monthly payment of $5,000, which would later grow to $10,000. The later increase was not recorded in any written contract.

In March 1999 C3D issued 50,000 shares for Yaakov estimated at $200,000, before Yaakov joined C3D's board. Yaakov was given a five-year warrant to acquire another 100,000 shares.

Various estimates put his holdings in the company at 1.1%. Still, the monies which reached Yaakov during his stint as chairman cannot be ascertained.

C3D was founded in 1995 by a group of scientists, including Dr. Eugene Levich. The company is traded on Nasdaq at a market cap of $240 million. It has developed a technology to increase the storage capacity of CDs. The first product the company is developing is a CD with a capacity of 140 gigabytes.

C3D has a development center and offices in Israel and in Russia. Most of its shareholders are private investors, but among them are also the Koor Capital Markets investment bank and

Formula Ventures

, the VC investment arm of the Formula Group. Formula Ventures' managing partner Shai Beilis also refused to comment on the Yaakov affair.