Investment firm

Emicom Group

today filed a lawsuit at the Tel Aviv District Court for NIS 34.4 million against Nissim Zur, founder and president of startup

ZMM

, TheMarker.com has learned. District Court judge Nissim Yehshaya granted Emicom's request and issued several non-disclosure writs on the suit.

An Emicom spokesperson said the courts are now investigating the issue, and that their could be repercussions which extend beyond a civil case.

Emicom claims it filed the lawsuit together with other ZMM shareholders after realizing that they had been duped, despite having conducted due diligence before investing. This is considered a rare occurrence in the startup and venture capital worlds, where an investment rarely fails due to suspicion of disorderly conduct within the company.

Three months ago, the Emicom Group invested $7 million in ZMM at a speculated $25 million valuation, post-money.

ZMM's Zur was unavailable for comment. A company representative said that he was on vacation and that it was not known when he would return.

ZMM was founded in 1995 by Nissim Zur. A new CEO, Gidi Levine, had recently been appointed to lead the firm's transition from a technology company to an R&D enterprise. ZMM was planning on developing USB components to integrate conventional telephones with the personal computer.

Before the Emicom investment, ZMM had been developing solutions for voice over IP transmission, systems for speech and voice recognition, USB components for connecting external devices to the computer and other products.

In 1999, ZMM had $2 million in revenues, and was expected to have $6 million in sales by the end of 2000. Its clients include

ECI Telecom

(Nasdaq:ECIL),

Fujitsu

and the

NEC Corporation

(Nasdaq:NIPNY).

Emicom is an investment firm established by the founders of software company Memco. Emicom recently completed a primary placement of $57 million, intended to be invested in startups.

Emicom focuses on investing in software infrastructure, Internet and communication companies. In addition to ZMM, it has already invested in

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With Alon Tavor