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Intellectual Property Rights
10/09/2009

3 indicted for selling counterfeit high-tech parts to the US military

Counterfeit integrated circuits sold to the U.S. Navy

WASHINGTON - An 11-count indictment unsealed Oct. 8 charged three Newport Coast, Calif., residents with conspiracy, trafficking in counterfeit goods or services, and mail fraud, for selling counterfeit integrated circuits to the U.S. Navy. This indictment resulted from an investigation led by U.S. Immigration and Customs Enforcement (ICE).
Mustafa Abdul Aljaff, 29, his sister, Marwah Felahy (formerly Aljaff), 32, and her husband, Neil Felahy, 32, were named in the indictment.

The government executed search warrants on Oct. 8 at three business locations, two residences, and a storage facility in California alleged to be connected to the case. The defendants were also arraigned in Federal District Court in California the same day. They will make their appearances in U.S. District Court in Washington, D.C., where the case was indicted, at a date to be set in the near future.

"Illegally importing counterfeit products into the United States represents not just an economic and public safety threat, but can also impact the safety and security of our nation," said Jim A. Dinkins, special agent in charge of the ICE Office of Investigations in Washington, D.C. "ICE is determined to pursue and bring to justice those seeking to engage in these illicit activities."

As described in the indictment, integrated circuits are a type of semiconductor that function as amplifiers, oscillators, timers, counters, computer memory, and microprocessors. Integrated circuits are used in a wide array of modern electronic products including consumer electronics and transportation, medical, aircraft, spacecraft, and military applications. Using counterfeit integrated circuits can result in product malfunction or failure, and can also cause serious bodily injury from electrocution and, in some circumstances, death. Markings on integrated circuits that indicate a part is "military grade" signify that the part has been specially manufactured, among other things, to withstand extreme temperature ranges and high rates of vibration. Legitimate manufacturers subject such parts to specialized testing not used in producing "commercial grade" parts. Military grade integrated circuits are sold to the U.S. military at a higher price than commercial grade parts because of the special manufacture and testing required.

 According to the indictment, the defendants engaged in the interstate trafficking of counterfeit integrated circuits in various ways. They acquired integrated circuits from supply sources in China, imported them into the United States, and sold them to the public via the Internet. They also obtained trademark-branded integrated circuits from unknown sources, and then scraped, sanded, or ground off the original markings, repainted the devices in a process referred to as "black topping," and remarked the devices with another trademark thereby fraudulently indicating, among other things, that the devices were of a certain brand, newer, higher quality, or were of military grade.

The defendants are alleged to have operated the conspiracy through a number of California companies: MVP Micro Inc., BeBe Starr, Consulting Inc., Red Hat Distributors Inc. (aka "RH Distributors," and "Red Hot Distributors"), Force-One Electronics Inc., Labra Inc. (subsequently renamed Labra Electronics Inc., and then Becker Components Inc.), and Pentagon Components Inc. The defendants also operated websites related to those companies, including: www.mvpmicro.com, www.labrainc.com, www.rhdistributors.com, and www.pentagoncomponents.com.

As alleged in the indictment, on March 3, June 26 and July 14, 2009, the defendants entered into contracts with the U.S. Navy and other government agencies to sell integrated circuits. Subsequently, the defendants shipped integrated circuits bearing false, counterfeit trademarks to the U.S. Navy, in Washington, D.C. The indictment also alleges that on 22 separate occasions, the defendants imported into the United States from China and Hong Kong, 13,073 integrated circuits bearing counterfeit trade marks, including military-grade markings, valued at about $140,835.50. Those counterfeit integrated circuits bore the purported trademarks of a number of legitimate companies, including: Fujitsu, Analog Devices Inc., Atmel Corporation, ST Microelectronics Inc., Altera Corporation, Intel Corporation, Elantec Semiconductor Inc., TDK Corporation, National Semiconductor Inc., and VIA Technologies Inc.

"Product counterfeiting undermines the value of trademarks by allowing perpetrators to benefit economically from the hard work, ingenuity, and investment of others," said Acting U.S. Attorney Phillips. "This case highlights the significant potential impact such crimes also can have on public health and safety as well as national security. We will aggressively investigate and prosecute those who seek to profit by engaging in product counterfeiting to the detriment of legitimate rights holders."

"Contract fraud - in this case, product substitution involving counterfeit microchips - presents a security and safety risk to our sailors and Marines. NCIS will continue to aggressively investigate these criminal cases in order to prevent any defective material from entering the DoD (Department of Defense) supply system," said Sandy Macisaac, special agent in charge, Naval Criminal Investigative Service, Washington Field Office.

Based upon the conduct alleged in the indictment, the defendants face possible statutory sentences of up to five years incarceration and a $250,000 fine for the crime of conspiracy; up to 20 years incarceration and a $250,000 fine for each count of mail fraud; and up to 10 years incarceration and a $5 million fine for each count of trafficking in counterfeit goods or services. In addition, the defendants could face an order of restitution, a term of supervised release, and an order or forfeiture and destruction.