FBI Investigates Israeli Tech Firm Alarom Amid Stock Collapse and Service Suspension

Israeli technology company Alarom is under investigation by the FBI, triggering a sharp decline in its stock prices on both the Nasdaq and Tel Aviv exchanges and leading the company to suspend parts of its operations. The probe focuses on NetNut, a subsidiary of Alarom, which is suspected of connecting customers' home internet devices to a proxy network without their consent. This network allows users to mask their locations by routing internet traffic through residential IP addresses worldwide.

On Friday, Alarom's shares plummeted 71.3% on the Tel Aviv Stock Exchange to a market value of 50.7 million shekels, with similar steep drops on Nasdaq during and after trading hours. Alarom provides internet access and data collection solutions to organizations and is led by CEO Shahar Daniel. The FBI has been investigating for over a year possible links between NetNut and software called Popa, allegedly used to hijack user devices.

Last Thursday, Alarom reported that the FBI had seized certain NetNut-related domains. The following day, the company disclosed disruptions in some services and warned of significant negative impacts if these continued. On Sunday, Alarom announced a temporary suspension of data traffic through the relevant proxy services to investigate the incident, assess infrastructure, and implement necessary security measures before resuming normal operations.

Residential proxy networks route traffic through everyday devices like laptops, smartphones, routers, and smart TV boxes, sometimes with users' consent for small payments, but often without their knowledge. Cybersecurity experts warn these networks can facilitate criminal activities such as fraud and cyberattacks. Craig Labovitz, CTO of Nokia Deepfield, described residential proxies as "thousands of anonymous strangers sneaking into your home to access the internet," often unbeknownst to device owners.

Security firms Synthiant and Curium have linked Popa software to unauthorized device recruitment into proxy networks, primarily affecting Android devices and smart TV boxes globally. Another security company, Spor, accused NetNut of minimal client verification and providing access to networks without user consent. Alarom and NetNut have denied these claims, emphasizing their policies for legal and responsible service use, including client due diligence and abuse monitoring.

The FBI investigation is part of a broader US law enforcement effort to scrutinize residential proxy networks, which have been implicated in compromising millions of devices worldwide. Alarom's corporate legal advisor, Omer Weiss, stated the company is taking the matter seriously and will fully cooperate with authorities to investigate any misuse and hold responsible parties accountable.