Three indicted for counterfeit IC sales to US Navy

Counterfeit ICs falsely bearing markings from the likes of Intel, ADI, and National Semiconductor were allegedly brought into the United States and sold by three family members in California, according to a US Attorney’s Office indictment.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 10/13/2009

Three California family members have been indicted by the United States Attorney’s Office for trafficking counterfeit ICs to the United States Navy.

An 11-count indictment was unsealed on October 8, charging Mustafa Abdul Aljaff, 29, his sister, Marwah Felahy, 32, and her husband, Neil Felahy, 32, all of Newport Coast, Calif. The US government last Thursday executed search warrants 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 that same day, and will make their appearances in US District Court in Washington, DC, where the case was indicted, at a date to be set in the near future, the Attorney’s Office has reported.

According to the indictment, the three defendants engaged in the interstate trafficking of counterfeit ICs by acquiring the ICs from supply sources in China, importing them into the United States, and selling them to the public over the Internet. The defendants also allegedly obtained trademark-branded ICs from unknown sources and "black topped" the ICs, removing the original markings, repainting the ICs, and remarking the devices with another trademark. In doing so, the Attorney’s Office claims the trio fraudulently indicated, among other things, that the devices were of a certain brand; newer, higher quality; or were of military grade.

The California residents are alleged to have operated through a number of California companies including MVP Micro, BeBe Starr, Consulting Inc, Red Hat Distributors, Force-One Electronics, Labra, and Pentagon Components.

According to the Attorney’s Office, on March 3, June 26, and July 14, the defendants entered into contracts with the Navy and other government agencies for the sales of ICs. They then shipped ICs bearing false, counterfeit trademarks to the Navy, in Washington, DC.

The indictment also claims that on 22 separate occasions the defendants imported into the United States from China and Hong Kong, approximately 13,073 ICs bearing counterfeit trade marks, including military-grade markings, valued at approximately $140,835.50. Those counterfeit ICs bore the purported trademarks of a number of legitimate semiconductor industry companies, including Fujitsu, Analog Devices, Atmel, STMicroelectronics, Altera, Intel, Elantec Semiconductor, TDK, National Semiconductor, and VIA Technologies.

In its statement, the Attorney's Office recognized the damage counterfeit ICs can do to electronics and electronics systems, as well as the damage such ICs can do to the companies and brands violated.

“Product counterfeiting undermines the value of trademarks by allowing perpetrators to benefit economically from the hard work, ingenuity, and investment of others,” said Acting US Attorney Channing D Phillips in the statement. “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.”

The SIA (Semiconductor Industry Association) applauded the Attorney’s Office's actions.

“Semiconductor counterfeiting is fraud, pure and simple,” said SIA President George Scalise in a separate statement. “[This] law enforcement actions should send a clear message to those who traffic in counterfeit semiconductors that this illegal activity will not be tolerated."

Scalise continued to remind that electronic equipment manufacturers can also combat counterfeiting by purchasing semiconductors only from trusted sources.
 
The SIA itself formed an anticounterfeiting task force in 2006 to address the growing problem of semiconductor counterfeiting. Though work with US Customs and Border Protection, the task force led to the seizure of 780,000 counterfeit semiconductors in two operations in 2007 and 2008.
 
“A thousand-dollar electronic system can fail due to an unreliable counterfeit one-dollar part, leaving the systems manufacturer or consumer with an expensive loss,” Scalise said. “Semiconductor applications where unreliable devices can also have serious safety implications include medical instruments, automotive and aircraft parts, and public infrastructure such as first responders’ radio communications.”

In announcing the indictment, the Attorney’s Office acknowledged the SIA, as well as several of the semiconductor industry companies which had trademarks falsely applied to the counterfeit ICs. 

Based upon the conduct alleged in the indictment and under the US Sentencing Guidelines, there is a likely sentence of 63 to 78 months incarceration for the defendants. However, the potential sentence is subject to increase pending continuing investigation.

The Attorney's Office reminded that an indictment is a formal charge that a defendant has committed a violation of criminal laws and that every defendant is presumed innocent until, and unless, proven guilty.