Undercover op netted Chinese man trading $100 million worth of pirated software

Last Monday saw the first of such case in United States history when a Chinese businessman admitted in court in selling military grade stolen American software currently being used in engineering, space technology, as well as defense, and were estimated to have a value of over $100 million.

The stolen programs were taken illegally from 200 American software makers from 2008 to 2011. The software were sold to 325 buyers from black markets in 61 countries, according to prosecutors in court filings. Some buyers in the US included the chief scientist of a defense and law enforcement contractor as well as a NASA engineer.

Companies that were identified as victims include Oracle, Microsoft, Rockwell Automation, Siemens, Agilent Technologies, Delcam, SAP, and Altera Corp.

The defendant’s lawyer Mingli Chen, and U.S. officials confirmed that this is the first case wherein a businessman from China trading pirated industrial programs was taken to the United States for trial.
The defendant, Xiang Li, from Chengdu, China, was lured from the Chinese mainland by U.S. undercover agents and arrested in June 2011. The agents belong to the U.S. Department of Homeland Security in the island of Saipan.

A video taken from the undercover sting will be presented as evidence in court today and is expected to be made public during a press conference by John Morton, the director of U.S. Immigration and Customs Enforcement, and the U.S. Attorney for Delaware Charles M. Oberly III.

Li was charged initially with a 46-count indictment but pleaded guilty yesterday to single counts of conspiracy to commit wire fraud and criminal copyright violations.

Li, speaking through a translator, admitted to U.S. District Judge Leonard P. Stark: “I want to tell the court that what I did was wrong and illegal and I want to say I’m sorry.”

The prosecution team composed of Edward McAndrew and David Hall said that the total trade value of the software could exceed $100 million.

Li told the judge that the figure quoted by the prosecutors is excessive.  Following the initial hearing, Li’s lawyer said that his client was not aware of the retail value of the goods he was selling until he was told so when he was arrested. Li said he will present his own estimate during sentencing, set for May 3.

U.S. officials have stepped up efforts for the past few years to target  software pirates outside the country although bringing them in was a big challenge.

One of the biggest stories last year involving copyright cases was the prosecution of Kim Dotcom, the founder of Megaupload. He was charged with copyright violations and racketeering conspiracy. He currently lives in New Zealand where he ran a $175 million organization trading an estimated $500 billion worth of illegal TV shows, pirated movies, and other entertainment software.

For Li’s case, the goods he was trading were advanced business software, not entertainment software, thus they’re in small quantities but at higher prices. According to the prosecution, the products he sold in the black market ranged from several hundred dollars to more than $1 million for each. He sold them apiece for as low as $20 to $1200. and Li’s other websites offered more than 2000 pirated business software at one time, said the prosecution.

Li, 36, scours black market internet sites and forums to look for hacked software and people with knowledge how to decrypt passwords to run a program. Afterwards, he would advertise them for sale on his websites. He moved hacked programs to customers by compressing them for easy uploading to Gmail. Alternatively, he would also send hyperlinks to download servers for use by his customers, said the government officials.

“He was pretty proud of himself,” his lawyer Chen said. “He did not realize it was such a big crime.”

U.S. officials discovered Li’s illicit business activity after an unidentified U.S. manufactured complained that one of its products was seen on for sale on site.

The undercover sting started in early 2010 and ran for 18 months, netting five purchases from Li. The purchases included pirated versions of “Satellite Tool Kit” created by Analytical Graphics Inc, a product, which, according to prosecutors was “designed to assist the military, aerospace and intelligence industries through scenario-based modules that simulate real-world situations, such as missile launches, warfare simulations and flight trajectories.” The said software was worth $150,000 in retail but agents purchased it from Li’s website for several thousand dollars.

The undercover agents managed to convince Li to come to Saipan, a U.S. territory, under the guise of discussing a possible illegal business partnership. In Saipan, Li delivered a pirated packaging and, according to prosecution, “Twenty gigabytes of proprietary data obtained unlawfully from an American software company.” Officials did not name the company involved.

source: reuters

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