Business manager sentenced for conspiring to sell counterfeit microelectronics to US military

WASHINGTON — The operations manager for MVP Micro, a California based company, was sentenced to 20 months in prison Wednesday for conspiring to sell counterfeit integrated circuits to the U.S. military, defense contractors and others.

The investigation was conducted by the U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI) field office in Washington, D.C., and the Washington, D.C., office of the Naval Criminal Investigative Service (NCIS).

Neil Felahy, 34, of Newport Coast, Calif., pleaded guilty in November 2009 to federal charges of conspiracy to distribute counterfeit integrated circuits and to commit mail fraud, and trafficking in counterfeit goods.

Upon completion of his prison term, Felahy will be placed on three years of supervised release. He also must perform 500 hours of community service.

Co-defendant Mustafa Abdul Aljaff, 32, also of Newport Coast, and Aljaff's brother-in-law, was sentenced on Feb. 15 to 30 months in prison. Upon completion of his prison term, Aljaff will be placed on three years of supervised release. He also must perform 250 hours of community service. Both Felahy and Aljaff pleaded guilty within months of their arrests and cooperated with authorities as the investigation continued.

As part of the plea agreement, Felahy agreed to pay, jointly and severally with Aljaff, $184,612 in restitution to the semiconductor companies whose trademarks were infringed as a result of their criminal acts.

Aljaff owned MVP Micro and a host of other companies operating from the same location in Irvine, Calif. According to the government's evidence, he was the mastermind and leader of the highly sophisticated fraud scheme to import, sell, manufacture and distribute, in interstate and international commerce, counterfeit integrated circuits. The conspiracy took place between September 2007 and August 2009. As the operations manager for MVP Micro, Felahy ran the day-to-day operations that enabled the conspiracy.

An integrated circuit is a high-tech device, incorporated into a computer board, which acts as a switch. Integrated circuits control the flow of electricity in the goods or systems into which they are incorporated. They are used in a variety of applications, including industrial, consumer electronics, transportation, infrastructure, medical devices and systems, spacecraft, and military.

Counterfeit integrated circuits can result in product or system failure or malfunction, and can lead to costly system repairs, property damage and serious bodily injury, including death. They also raise national security concerns because their history is unknown, including who has handled them and what has been done to them. In addition, the devices can be altered and certain devices can be preprogrammed. Counterfeits can contain malicious code or hidden "back doors" enabling systems disablement, communications interception and computer network intrusion.

Markings on integrated circuits indicate a part is "commercial-grade,""industrial-grade," or "military-grade." Military grade markings signify that the part has been specially tested to withstand extreme temperature ranges and high rates of vibration.

According to the government's evidence, MVP Micro and related companies sold and distributed counterfeit integrated circuits to approximately 420 buyers in the United States and abroad, including the U.S. Department of the Navy, defense contractors, other broker/distributors and numerous industry sectors, including transportation, medical services and aerospace.

During their guilty pleas, Felahy and Aljaff agreed that on more than 20 separate occasions, they and others imported into the United States from China and Hong Kong, approximately 13,073 integrated circuits bearing counterfeit trademarks, including military-grade markings, valued at about $140,835. Those counterfeit integrated circuits bore the purported trademarks of a number of legitimate semiconductor manufacturers.

One of the two counts to which Aljaff pled guilty involved a counterfeit, military-grade integrated circuit that he had purchased from a Florida-based company, Vision Tech Components, LLC. The owner of Vision Tech, Shannon Wren, was indicted in the U.S. District Court for the District of Columbia on conspiracy and other charges related to the firm's own sales of counterfeit integrated circuits. Also indicted in that case was Stephanie McCloskey, Vision Tech's administrative manager. Wren died pending trial. McCloskey pled guilty in November 2010 to charges of conspiracy to traffic in counterfeit goods and to commit mail fraud; she was sentenced in October 2011 to a prison term of 38 months.

This case was part of the National Intellectual Property Rights Coordination Center's Operation Chain Reaction, a comprehensive initiative targeting counterfeit items entering the supply chains of the Department of Defense and other U.S. government agencies. Ten of the center's 20 task force members are participating in Operation Chain Reaction, including HSI; U.S. Customs and Border Protection; FBI; Naval Criminal Investigative Service; Defense Criminal Investigative Service; U.S. Army Criminal Investigative Command, Major Procurement Fraud Unit; General Services Administration, Office of Inspector General; Defense Logistics Agency, Office of Inspector General; U.S. Air Force, Office of Special Investigations; and National Aeronautics and Space Administration, Office of Inspector General.