Mar. 1--Kollsman's parent company is tangled in a multimillion-dollar lawsuit over a partnership with the Israeli satellite program.

The suit is complex -- involving hundreds of people, spanning nine years and crossing international borders. But it essentially accuses Elbit Systems of defrauding U.S. investors who funded an effort to privatize Israel's bankrupt satellite intelligence program.

Elbit, a global defense contractor based in Israel, is the parent of Merrimack's Kollsman, which makes aviation and electro-optic systems.

The partnership began around 2000, when the Israeli space program was in trouble. After launching failed satellites that blew up over the Mediterranean, the program was in danger of losing government funding, according to Steve Baldini, the lead attorney in the case.

So the Israeli Ministry of Defense solicited money from $100 million private investors to set up a commercial satellite enterprise, dubbed ImageSat. A private U.S. equity fund called Pegasus emerged as the lead investor, putting up some $30 million, Baldini said.

Elbit Systems was to build cameras for the ImageSat satellites, and co-defendant Israeli Aerospace Industries was to build the satellites themselves.

However, the lawsuit alleges that the satellites were never built and the companies instead used ImageSat money to fund other deals.

"They have raided the company and used it as a piggy bank," Baldini said.

Elbit has yet to issue a response to the suit in court.

Baldini, an attorney with the New York firm Akin Gump, represents the Pegasus investors in the suit, which was filed Dec. 15 in U.S. District Court. He said a number of big-name U.S. investors and a number of state pension funds used to fund the venture have lost money. He declined to name specific investors or states.

The suit does not have class-action status, but Baldini said there are three other pending suits that raise similar allegations.

Specific allegations in the 45-page lawsuit include:

-- IAI and Elbit Systems entered into bogus contracts with ImageSat soliciting millions of investment dollars, enhanced their own technology to compete with ImageSat, then claimed investors had no right to the profit from its sales.

-- IAI used ImageSat money to bolster its own research and development for improved technology, then sold and marketed its satellites in competition with ImageSat, violating ImageSat's rights and the promises that IAI made to U.S. investors.

-- IAI and Elbit have violated conflict of interest when it comes to ImageSat because they have majority control of the board. The board members have facilitated all the improper actions because they can outvote the other directors on the board.

-- The two companies have blocked attempts to install new, independent directors that would have better served the company.

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