FORMER
CHINESE NATIONAL CHARGED WITH STEALING MILITARY APPLICATION TRADE
SECRETS FROM SILICON VALLEY FIRM TO BENEFIT GOVERNMENTS OF THAILAND, MALAYSIA,
AND CHINA
Third Foreign Economic
Espionage Indictment in the United States Since the Enactment Of Economic
Espionage Act of 1996
Source Code Used
for Military Combat Simulation and Banned for Export Without License
SAN JOSE - United
States Attorney Kevin V. Ryan announced that a former Chinese national
was charged late yesterday in a 36-count superseding indictment alleging
that he stole military application trade secrets and used them in demonstration
and sales proposals to the Peoples Republic of China (PRC), Malaysian
Air Force, and the Thailand Air Force. This prosecution is the result
of a joint investigation by the U.S. Attorney's Office CHIP Unit, the
Federal Bureau of Investigation (FBI) and Department of Homeland Security,
Bureau of Immigration and Customs Enforcement (ICE).
XIAODONG SHELDON
MENG, 42, is charged with stealing military combat and commercial simulation
software and other materials from his former employer Quantum3D, a company
based in San Jose, California. The economic espionage charges allege that
Meng, formerly a resident of Beijing, China, and a resident of Cupertino,
California, stole the trade secrets from Quantum3D with the intent that
they would be used to benefit the foreign governments of China, Thailand,
and Malaysia.
United States Attorney
Kevin V. Ryan stated, "This case highlights the vital importance
of protecting the intellectual property and trade secrets not only in
Silicon Valley but also for our country's businesses. The alleged economic
espionage and theft and export of trade secrets such as these—visual
simulation training software that has military application, no less—has
real consequences that could jeopardize our country's military advantages
in the world, in addition to creating substantial financial losses for
our businesses which legitimately developed and owned this information.
We are grateful to our law enforcement partners for taking swift and appropriate
action here, and also want to acknowledge the pivotal role private industry's
ready cooperation has in these investigations."
Many of Quantum3D's
products were designed primarily for military purposes, including military
combat training in simulated real-time conditions during the day and night
and the use of advanced infrared (IR), Electro-Optical (EO), and Night
Vision Goggle (NVG) devices. The indictment alleges that Meng stole numerous
Quantum3D products, including "viXsen™" and "nVSensor™,"
which were used exclusively in military applications, and designed for
precision training of military fighter pilots in night vision scenarios
among other applications. Both "viXsen™" and "nVSensor™"
are classified as defense articles on the U.S. Munitions List and cannot
be exported outside the United States without an export license.
According to the
charges, Meng took up employment with a competing company, Orad, to "pursue
other career development opportunities in China". At one point, Meng
altered the Quantum3D's Mantis program to reflect the name of a program
which belonged to Orad, a competitor of Quantum3D, according to the charges.
Meng then used that program as part of a demonstration project in China.
The indictment includes
three conspiracy counts; three counts of economic espionage and attempted
economic espionage; two counts of violations of the Arms Export Control
Act; twelve counts of theft of trade secrets and attempted theft of trade
secrets; fifteen counts of foreign and interstate transportation of stolen
property; and three counts of making false statements to a government
agency.
FBI Special Agent
in Charge Charlene B. Thornton: "The FBI is committed to aggressively
pursue those attempting to illegally obtain and export trade secrets vital
to maintaining the United States' position as a world leader in innovation.
Today's indictment highlights the value of cooperation between law enforcement
and private industry in effectively conducting these investigations."
Quantum3D, Inc.
has cooperated fully in the government's investigation. A company official
noted that the company "believes that enforcement of export and trade
secret laws is critical to the functioning of our industry and we're pleased
to work with the government in these efforts."
Defendant Meng is
scheduled to be appear before United States Magistrate Judge Howard R.
Lloyd in San Jose on Monday, December 18, 2006, at 11:00 a.m. Meng was
initially charged by complaint on December 9, 2004. The original indictment
on the case remains under seal. Mr. Meng is currently out of custody on
$500,000 bond.
According to the
U.S. Department of Justice, the charges represent the third case alleging
violation of the Economic Espionage Act of 1996, under 18 U.S.C. §
1831. The first indictment was returned on May 8, 2001, in the Northern
District of Ohio in United States v. Okamoto and Serizawa. (More information
is available at: http://www.usdoj.gov/criminal/cybercrime/Okamoto_SerizawaIndict.htm).
The second indictment was filed on December 4, 2002, by the Northern District
of California CHIP Unit in United States v. Fei Ye and Ming Zhong, CR
02-20145-JW. (More information is available at: www.usdoj.gov/usao/can/press/2003/2002_12_04_ye.zhong.indictment.press.html).
The maximum statutory
penalty for each count of:
- Conspiracy, in
violation of 18 U.S.C. § 371, is five years in prison, a fine of
$250,000 or twice the value of the property involved in the transaction,
whichever is greater, a three year term of supervised release;
- Economic Espionage
and Attempted Economic Espionage, in violation of 18 U.S.C. §§
1831(a)(3), 1831(a)(4), is fifteen years in prison, a fine of $500,000
or twice the value of the property involved in the transaction, whichever
is greater; a three year term of supervised release;
- Arm Export Control
Act, in violation of 22 U.S.C. § 2778, is ten years in prison,
a fine of $1,000,000 or twice the value of the property involved in
the transaction, whichever is greater; a three year term of supervised
release;
- Misappropriation
of Trade Secrets and Attempted Misappropriation of Trade Secret, in
violation of 18 U.S.C. §§ 1832(a)(1), 1832(a)(4), is ten years
in prison, a fine of $250,000 or twice the value of the property involved
in the transaction, whichever is greater, a three year term of supervised
release;
- Interstate and
Foreign Transportation of Stolen Property count, in violation of 18
U.S.C. §§ 2314, is ten years in prison, a fine of $250,000
or twice the value of the property involved in the transaction, whichever
is greater, a three year term of supervised release;
- False Statement
to Government Agency, in violation of 18 U.S.C. § 1001, is five
years in prison, a fine of $250,000 or twice the value of the property
involved in the transaction, whichever is greater, a three year term
of supervised release.
However, any sentence
following conviction would be imposed by the court after consideration
of the U.S. Sentencing Guidelines and the federal statute governing the
imposition of a sentence, 18 U.S.C. § 3553.
An indictment contains
only allegations against an individual and, as with all defendants, Mr.
Meng must be presumed innocent unless and until convicted.
The case is one
of the many cutting-edge cases prosecuted by the Computer Hacking and
Intellectual Property (CHIP) Unit of the United States Attorney's Office.
The CHIP Unit, which is based in the San Jose branch of the U.S. Attorney's
Office, was established in 2000 and was the first federal specialized
prosecution unit in a U.S. Attorney's Office. This model has been followed
in other offices and there are now about twenty-five CHIP Units in U.S.
Attorney's Offices around the country.
Criminal Division Chief Mark L. Krotoski is the Assistant U.S. Attorney
prosecuting the case. This prosecution is the result of a joint investigation
by the Federal Bureau of Investigation (FBI) and Department of Homeland
Security, Bureau of Immigration and Customs Enforcement (ICE) - Office
of Investigations Special Agents, U.S. Customs & Border Protection
(CBP) Officers.
APROXIMATE TIME-LINE
OF ALLEGATIONS IN INDICTMENT
- June 19, 2000,
to March 7, 2003: Defendant XIAODONG SHELDON MENG was employed at Quantum3D
as a Systems Engineer, computer systems analyst, and 3D Graphics Application
Senior Engineer. As part of his employment, defendant Meng signed Quantum3D's
proprietary information agreement where he agreed to return all of Quantum3D's
proprietary information upon his departure from the company.
- March 7, 2003:
Defendant MENG resigned his position from Quantum3D. At this time, defendant
falsely stated that he returned all proprietary information belonging
to Quantum3D.
- March 7, 2003
to April 1, 2003: MENG had no employment, consulting or other relationship
with Quantum3D.
- March 19, 2003:
MENG entered into a consulting agreement with Quantum3D, effective April
1, 2003, in which MENG would serve as an independent consultant for
Quantum3D in Asia.
- March 26, 2003:
MENG departed the United States from San Francisco, California for Taipei,
Republic of China (Taiwan).
- April 1, 2003,
to December 31, 2003: XIAODONG SHELDON MENG served as an independent
consultant for Quantum3D in Asia. Meng resided in the People's Republic
of China (PRC).
- June 15, 2003:
MENG attempted to compile, Audition source code version 4.1.0.46, as
part of an unauthorized use of Quantum3D products with the Malaysian
Air Force.
- August 17, 2003:
MENG attempted to compile, and caused others to attempt to compile,
Fulcrum source code, a product of Quantum3D, as part of an unauthorized
use of Quantum3D products with the Malaysian Air Force.
- August 17, 2003:
MENG attempted to compile, and caused others to attempt to compile,
source code into the MantisClient application, as part of an unauthorized
use of Quantum3D products with the Malaysian Air Force.
- January 6, 2004:
MENG represented that he was a Manager for Orad, Inc., a direct competitor
of Quantum3D, using an email address of sheldonm@orad.tv.
- January 15, 2004:
MENG ended his consulting relationship with Quantum3D citing an effective
date of December 31, 2003. Meng had already taken a position with Orad,
a direct competitor of Quantum3D, in the PRC, and indicated his desire
to "pursue other career development opportunities in China."
- May 19, 2004:
MENG conducted a demonstration for Blue Sky (AVIC I) in Beijing, PRC,
as part of the unauthorized use of Quantum3D products with government
agencies in China, including Beijing Lantian Aviation Simulation Technology
Company, a subsidiary of China Aviation Industry Corporation.
- May 24, 2004:
MENG prepared Quantum3D's OpenGVS for demonstration on the DVG (Digital
Video Graphics) in the PRC, as part of the unauthorized use of Quantum3D
products with government agencies in China, including Beijing Lantian
Aviation Simulation Technology Company, a subsidiary of China Aviation
Industry Corporation, the Navy Research Center of China, and the Shenzhen
Land Management Bureau.
- May 31, 2004 to
June 4, 2004: MENG compared and ran Quantum3D's product Independence
with Orad's DVG product, as part of the unauthorized use of Quantum3D
products with government agencies in China, including Beijing Lantian
Aviation Simulation Technology Company, a subsidiary of China Aviation
Industry Corporation, the Navy Research Center of China, and the Shenzhen
Land Management Bureau.
- June 3, 2004:
MENG prepared a DVG digital visual system proposal for Blue Sky (AVIC
I) that discussed options for image generator solutions, as part of
the unauthorized use of Quantum3D products with government agencies
in China, including Beijing Lantian Aviation Simulation Technology Company,
a subsidiary of China Aviation Industry Corporation, the Navy Research
Center of China, and the Shenzhen Land Management Bureau.
- June 20, 2004:
MENG sent an email suggesting the use of Quantum3D products viXsen and
Mantis for an image generator proposal. Defendant Meng also noted that
he had "genius engineers in China who are interested in developing
Sensor" products, as part of an unauthorized use of Quantum3D products
with the Malaysian Air Force.
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