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Intellectual Property Rights
01/08/2013

HSI dismantles massive international cyber-theft conspiracy

Chinese national responsible for over $100 million in lost revenue to US businesses

WILMINGTON, Del. – A Chinese national pleaded guilty late yesterday to conspiracy to commit criminal copyright infringement and wire fraud. The individual operated a website used to distribute more than $100 million worth of pirated software around the world, making it one of the most significant cases of copyright infringement ever uncovered – and dismantled – by U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI).

Xiang Li, 36, of Chengdu, China, will be sentenced May 3, 2013, by U.S. District Court Judge Leonard P. Stark. Li faces a maximum sentence of 25 years in prison, a $250,000 fine and three years of supervised release following his prison sentence. The entry of the guilty plea was announced at a press conference held this morning in Wilmington by U.S. Attorney Charles M. Oberly III, District of Delaware and ICE Director John Morton.

"Li mistakenly thought he was safe from the long arm of HSI, hiding halfway around the world in cyberspace anonymity," said Director Morton. "Fast forward to today, where he is now being held accountable in Delaware for illegally stealing, distributing and ultimately exploiting American ingenuity and creativity at a loss of at least $100 million to U.S. companies. HSI is committed more than ever to protecting American industry and U.S. jobs from criminals like him."

According to statements made at the plea hearing and documents filed in court, HSI identified Li as the operator of a website located at www.Crack99.com that was advertising thousands of pirated software titles at a fraction of their retail value. The investigation revealed that Li used the Crack 99 website to distribute pirated or cracked software to customers all over the world, including the United States. Software is "cracked" when its digital license files and access control features have been disabled or circumvented.

Through emails sent to customers of his website, Li described himself as being part of "an international organization created to crack" software. In a November 2008 email exchange with a customer, for example, Li stated that he would charge $1,000 to obtain a cracked version of a particular software program. When the customer wrote, "Yes ok tell me who do this." Li replied, "Experts crack, Chinese people Sorry can not reveal more."

During the course of the charged conspiracy from April 2008 to June 2011, Li engaged in more than 500 transactions, in which he distributed approximately 550 different copyrighted software titles to at least 325 purchasers located in at least 28 states and more than 60 foreign countries. These software products were owned by approximately 200 different manufacturers and were worth more than $100 million. The software is used in a wide range of applications including defense, engineering, manufacturing, space exploration, aerospace simulation and design, mathematics, and explosive simulation.

More than one-third of the unlawful purchases were made by individuals within the United States, including small business owners, government contractors, students, inventors and engineers. Some of Li's biggest American customers held significant engineering positions with government agencies and government contractors. For instance, Li sold 12 cracked software programs worth more than $1.2 million to Cosburn Wedderburn, who was then a NASA electronics engineer working at NASA's Goddard Space Flight Center, in Greenbelt, Md. Li also sold 10 cracked software programs worth more than $600,000 to Dr. Wronald Best, who held the position of chief scientist at a Kentucky-based government contractor that services the U.S. and foreign militaries and law enforcement with a variety of applications such as radio transmissions, radar usage, microwave technology and vacuum tubes used in military helicopters. Both Wedderburn and Best have pleaded guilty to conspiracy to commit criminal copyright infringement and are awaiting sentencing in the District of Delaware.

Between January 2010 and June 2011, undercover HSI special agents made a series of purchases of pirated software worth hundreds of thousands of dollars from Li's Crack 99 website. The investigation culminated in a face-to-face meeting between Li and undercover HSI special agents on the Island of Saipan in June 2011. Li agreed to travel from China to Saipan to deliver pirated software, design packaging and 20 gigabytes of proprietary data from a U.S. software company to undercover HSI special agents posing as U.S. businessmen. In addition, Li and the undercover HSI special agents were meeting to discuss a plan to distribute pirated software to small businesses in the United States. The undercover HSI special agents arrested Li June 7, 2011, after he delivered the stolen intellectual property to them at a Saipan hotel. Li was transported to the District of Delaware, where he has remained in custody since June 2011.

One of the companies victimized by the software piracy scheme stated, "Circumventing our commercial aerospace and defense software license mechanisms not only harms the competitiveness of our company, but also U.S. national security interests. In addition to the revenue lost, we spend significant legal resources obtaining patents and trademarks to protect our intellectual property. We also invest a lot of energy administering software license agreements and product-based, end-user licenses, which are key components of our U.S. export control compliance and customer support programs."

HSI-led National Intellectual Property Rights Coordination Center (IPR Center)

As the largest investigative arm of the Department of Homeland Security, HSI plays a leading role in targeting criminal organizations responsible for producing, smuggling and distributing counterfeit products. HSI focuses not only on keeping counterfeit products off our streets, but also on dismantling the criminal organizations behind such illicit activity.

HSI manages the IPR Center in Washington. The IPR Center is one of the U.S. government's key weapons in the fight against criminal counterfeiting and piracy. As a task force, the IPR Center uses the expertise of its 21 member agencies to share information, develop initiatives, coordinate enforcement actions and conduct investigations related to IP theft. Through this strategic interagency partnership, the IPR Center protects the public's health and safety, the U.S. economy and the war fighters.

To report IP theft or to learn more about the HSI-led IPR Center, visit www.IPRCenter.gov.

Assistant U.S. Attorneys David L. Hall and Edward J. McAndrew, District of Delaware, are prosecuting this case on behalf of the U.S. government.