I don't know what to make of the story. (I work in the IT industry)
I find it hard to believe that any device could connect to an iPhone or mobile phone ad-hock and pull data off it.
Even with the Blue Tooth turned on it would be "very" difficult without touching the other phone.
Defeating encryption? Yea right (wink, wink)... That's funny.
Good encryption can be defeated but you need a dedicated PC, the right software and a lot of time.
Most Police forces are lacking in basic IT related skills. The average cop needs proper training just use their laser guns correctly.
Do you really think they could successfully use such a device if it actually exists?
EDIT: Please post more info this this supposed "device"...