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Intellectual Property Rights
06/03/2014

Massachusetts man pleads guilty to importing, selling counterfeit circuits

Circuits were intended for use in nuclear submarines

WASHINGTON — A Massachusetts man pleaded guilty Tuesday to importing thousands of counterfeit integrated circuits (ICs) from China and Hong Kong and then reselling them to U.S. customers, including contractors supplying them to the U.S. Navy for use in nuclear submarines. The case was investigated by U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI), the Defense Criminal Investigative Service and the Naval Criminal Investigative Service.

Peter Picone, 41, of Methuen, Massachusetts, pleaded guilty before U.S. Magistrate Judge Donna Martinez of the District of Connecticut to an indictment charging him with conspiracy to traffic in counterfeit military goods. In a plea agreement with the government, he also agreed to forfeit $70,050 and almost 13,000 counterfeit integrated circuits seized at his home and business in April.

"Counterfeit semiconductors pose a serious health and safety risk to the consumer. However when the consumer is the brave men and women of the United States military, it becomes a matter of national security," said Bruce Foucart, special agent in charge of HSI Boston. "One of HSI's top enforcement priorities is protecting the integrity of U.S. military products and other sensitive technology."

According to the plea agreement, from 2007 through 2012, Picone conspired with his suppliers in China and Hong Kong to sell millions of dollars of ICs bearing the counterfeit marks of 35 major electronics manufacturers, including Xilinx, National Semiconductor and Motorola. Picone sold the counterfeit ICs to contractors whom he knew were, in turn, supplying them to the U.S. Navy for use in nuclear submarines.

Picone told his customers, many of whom specified in their orders that they would not accept anything but new ICs which were not from China, that the ICs were brand new and manufactured in Europe. Testing by the Navy and one of their contractors revealed the ICs purchased from Picone had been resurfaced to change the date code and to affix counterfeit marks, all in order to hide their true pedigree. In order to purchase these ICs, Picone wired almost $2 million to his suppliers' bank accounts in China and Hong Kong, in violation of federal money laundering laws.

This is the second conviction ever of trafficking in counterfeit military goods, a relatively new provision in the U.S. criminal code which was enacted as part of the National Defense Authorization Act of 2011.

The case is being prosecuted by the Department of Justice's Computer Crime and Intellectual Property Section (CCIPS), the Criminal Fraud Section, the Asset Forfeiture and Money Laundering Section and the U.S. Attorney of the District of Connecticut. Significant assistance was also provided by the CCIPS Cybercrime Lab.

This case is part of a national initiative called Operation Chain Reaction led by the National Intellectual Property Rights Coordination Center. The operation targets counterfeit goods entering the supply chain of the Department of Defense and other U.S. government agencies. The HSI-led IPR Center is one of the U.S. government's key weapons in the fight against criminal counterfeiting and piracy. Working in close coordination with the Department of Justice Task Force on Intellectual Property, the IPR Center uses the expertise of its 21-member agencies to share information, develop initiatives, coordinate enforcement actions and conduct investigations related to intellectual property theft. Through this strategic interagency partnership, the IPR Center protects the public's health and safety and the U.S. economy.