By Michael Isikoff and Mark Hosenball

The arrest of a prominent nuclear physicist on espionage charges late Monday afternoon is sure to revive questions about the extent of Israeli spying inside the United States—-a hot-button topic ever since the Jonathan Pollard case.

A rumpled and somewhat dazed looking Stewart David Nozette, 52, a longtime contractor for the Defense Department, Department of Energy, and NASA, who held high-level security clearances, made his initial court appearance Tuesday. He sat silently while a federal prosecutor told a U.S. magistrate that Nozette had been "captured on videotape" offering to "betray the United States" by selling some of the country's "most-guarded secrets" to an individual he believed was working for Israel.

The prosecutor, Assistant U.S. Attorney Anthony Asuncion, told the magistrate that the secrets that Nozette offered to sell would have done "exceptionally grave damage" to U.S. national security and that the government considered him a flight risk who should be held without bond. Magistrate Deborah Robinson then set a detention hearing for Oct. 29 after informing Nozette that he could face up to life in prison on charges of attempted espionage. Nozette did not enter a plea. "I have nothing to say," his lawyer John Kiyonaga, told reporters after the hearing in U.S. district court in Washington.

It is worth emphasizing that there are no allegations of Israeli government spying in the case. Instead, Nozette was arrested as part of an undercover sting in which an FBI agent posing as an Israeli Mossad officer approached him and sought to recruit him as a “regular continuing asset”─an offer that Nozette allegedly accepted in exchange for cash. According to the criminal complaint released by the Justice Department on Monday, among the information that Nozette later provided in a sealed manila envelope to the FBI agent was classified information about U.S. satellites, early-warning systems, "communications intelligence information," and "major elements of defense strategy."

But in what may be the most provocative aspects of the case, the criminal complaint against Nozette states that, before he ever encountered the undercover FBI officer, Nozette─while working at sensitive government jobs, including as a physicist at the Energy Department's Lawrence Livermore National Laboratory─was "tasked" by an aerospace company "wholly owned by the Israeli government" with providing them with unspecified technical data and was paid $225,000 for his work between November 1998 and January 2008. The complaint says that company representatives provided Nozette with "proposed questions or taskings" and that he provided answers in return.

The criminal complaint does not allege there was anything illegal about the payments Nozette received from the aerospace company. But Nozette seems to refer to his extensive prior work for the Israeli firm when he was asked by the FBI agent to work for the Mossad. “I thought I was working for you already,” he is quoted as saying to the undercover FBI agent when the two met for lunch in a Washington hotel on Sept. 3. “I mean that’s what I always thought, [the foreign company] was just a front.”   

Although the complaint doesn’t name the company that paid him, the Jewish Telegraph Agency reported that the firm in question is Israel Aerospace Industries, the country’s largest defense contractor, which makes the Lavi jet fighter. The company also makes drone aircraft for the U.S. Army and does extensive military, homeland security, and commercial work in the United States. The Israeli newspaper Haaretz also reported that IAI had business dealings with Nozette. An IAI spokesman declined comment but said the firm may have a statement on the matter later Tuesday or Wednesday.

Just as sensitive─politically─is what Nozette says next, according to the FBI complaint. Noting that “my parents are Jewish,” he says to the undercover FBI agent, “So I have a right, I theoretically have the right of return.” He then adds: “Because if I’m gonna work, I wouldn’t mind having another base of operations.” Nozette was apparently referring to the Israeli Law of Return─in which states that all Jews have the right to citizenship in the Jewish state.

As evidence that Nozette was a flight risk, prosecutor Asuncion at Tuesday’s court hearing also pointed to a passage from the criminal complaint in which Nozette told a colleague that if the United States government tried to "put him in jail" for an unrelated criminal offense, he would move to Israel or another foreign country and "tell them everything" he knows.  

According to the government’s own account, Nozette’s scientific career is quite distinguished. An official affidavit says he was awarded a Ph.D. in planetary sciences from MIT in 1983, and worked at the White House on the National Space Council, Executive Office of the President, in 1989 and 1990. According to the affidavit, Nozette developed a radar experiment called Clementine that purportedly discovered water on the south pole of the moon. He also worked at the Energy Department’s Lawrence Livermore National Laboratory─a major center for nuclear weapons research─from around 1990 to 1999.  

A U.S. government official (who asked not to be identified talking about a sensitive matter) said the investigation of Nozette grew out of an investigation of the scientist by NASA’s inspector-general for alleged fraud. According to documents filed in federal courts in Maryland and the District of Columbia, in January 2006, NASA’s IG opened a probe into whether the Alliance for Competitive Technology (ACT), a nonprofit corporation of which Nozette was the president and his wife, Wendy McColough, was a director, “may have submitted false claims to NASA.”

According to a public affidavit sworn by Anthony Pavlik, a special agent for the NASA IG, the preliminary investigation “disclosed that ACT submitted potential false claims to NASA when it invoiced NASA for reimbursement for the salary and an additional 40 percent for fringe benefits it allegedly incurred on Nozette’s behalf as an ACT employee, when according to ACT’s federal income tax return, these expenses were not fully paid.”
    
Nozette through his lawyers denied the fraud charges and in another court filing, seeking to have a court quash a subpoena the NASA IG issued for ACT bank records, claimed that the NASA IG investigation of Nozette was “clearly part of an ongoing, groundless and retributive effort by NASA to discredit, harass and malign Dr. Nozette and ACT.” The lawyer claimed that NASA was retaliating against Nozette because the scientist allegedly had “exposed the presence of a convicted felon … among NASA’s upper echelons,” which became a serious embarrassment to the space agency. NASA did not respond to Nozette's claims that he was being victimized for being a whistle-blower, and a federal judge rejected Nozette's attempts to quash a subpoena for his bank records.

There is no indication that the NASA probe led to any criminal charge against Nozette, but it did cause him to lose his security clearance in March 2006 and prodded the FBI to launch a more extensive probe of the scientist─eventually leading to the espionage charges, according to the U.S. government official.