MAN SENT TO PRISON FOR SELLING COUNTERFEIT INTEGRATED CIRCUITS FOR USE IN U.S. NUCLEAR SUBMARINES

FROM:  U.S. JUSTICE DEPARTMENT 

Tuesday, October 6, 2015

Massachusetts Man Sentenced to 37 Months in Prison for Trafficking Counterfeit Military Goods

A Massachusetts man was sentenced today to 37 months in prison for importing thousands of counterfeit integrated circuits (ICs) from China and Hong Kong and reselling them to U.S. customers, including contractors supplying them to the U.S. Navy for use in nuclear submarines.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Deirdre M. Daly of the District of Connecticut, Special Agent in Charge Matthew J. Etre of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE-HSI) in New England, Special Agent in Charge Craig W. Rupert of the Defense Criminal Investigative Service (DCIS) Northeast Field Office and Special Agent in Charge Leo Lamont of the Naval Criminal Investigative Service (NCIS) Northeast Field Office made the announcement.

Peter Picone, 42, of Methuen, Massachusetts, pleaded guilty on June 3, 2014, to conspiracy to traffic in counterfeit military goods.  In addition to imposing the prison term, U.S. District Judge Alvin W. Thompson of the District of Connecticut ordered Picone to pay $352,076 in restitution to the 31 companies whose ICs he counterfeited, and to forfeit $70,050 and 35,870 counterfeit ICs.

“Picone risked undermining our national security so that he could turn a profit,” said Assistant Attorney General Caldwell.  “He sold counterfeit integrated circuits knowing that the parts were intended for use in nuclear submarines by the U.S. Navy, and that malfunction or failure of the parts could have catastrophic consequences.”

“Supplying counterfeit electronic components to the U.S. Military is a serious crime,” said U.S. Attorney Daly.  “Individuals who choose profit over the health and safety of the men and women of our armed services will be prosecuted.”

“Counterfeit electrical components intended for use in U.S. military equipment put our service members in harm’s way, and our national security at great risk,” said Special Agent in Charge Etre.  “HSI will continue to aggressively target individuals and companies engaged in this type of criminal act.”

“The sentencing today demonstrates the continued efforts of the Defense Criminal Investigative Service and our fellow law enforcement partners to protect the integrity of the Department of Defense's infrastructure,” said Special Agent in Charge Rupert.  “Distributors who opt for financial gain by introducing counterfeit circuitry into the supply chain of mission critical equipment create an environment ripe for potential failures.  Such disregard puts the warfighter at an unnecessary risk, ultimately impacting the mission readiness of our military that the nation depends on.  DCIS will continue to shield America's investment in Defense by addressing all attempts to disrupt the reliability of our military's equipment and processes.”

“The U.S. Navy submarine force is a critical component of our national security,” said Special Agent in Charge Lamont.  “Protecting the Sailors who make up that force and their supply lines are top priorities for NCIS, to ensure our strategic deterrent remains effective.”

In April 2005, Picone founded Tytronix Inc., and served as its president and director until August 2010, when the company was dissolved.  In addition, from August 2009 through December 2012, Picone owned and operated Epic International Electronics (Epic) and served as its president and director.

In connection with his guilty plea, Picone admitted that, from February 2007 through April 2012, first through Titronix and later through Epic, he purchased millions of dollars’ worth of ICs bearing the counterfeit marks of approximately 35 major electronics manufacturers, including Motorola, Xilinx and National Semiconductor, from suppliers in China and Hong Kong.  Picone admitted that he resold the counterfeit ICs to customers both in the United States and abroad, including to defense contractors that Picone knew intended to supply the counterfeit ICs to the U.S. Navy for use in nuclear submarines, among other things.  Picone further admitted that he knew that malfunction or failure of the ICs likely would cause impairment of combat operations and other significant harm to national security.

On April 24, 2012, federal agents searched Picone’s business and residence, and recovered 12,960 counterfeit ICs.  In connection with his guilty plea, Picone admitted that he intended to sell the seized counterfeit ICs to defense contractors doing business with the Navy for use in military applications.

The case was investigated by the Defense Criminal Investigative Service, the NCIS and ICE-HSI.  The case is being prosecuted by Senior Counsel Kendra Ervin and Evan Williams of the Criminal Division’s Computer Crime and Intellectual Property Section (CCIPS), Assistant U.S. Attorney Sarala Nagala and Special Assistant U.S. Attorney Carol Sipperly of the District of Connecticut, Trial Attorney Anna Kaminska of the Criminal Division’s Fraud Section and Trial Attorney Kristen Warden of the Criminal Division’s Asset Forfeiture and Money Laundering Section.  The CCIPS Cybercrime Lab provided significant assistance.

CIVILIAN EMPLOYEE OF U.S. NAVY FOUND GUILTY OF OBSTRUCTION, MAKING FALSE STATEMENTS

FROM:  U.S. JUSTICE DEPARTMENT 

Friday, December 19, 2014

Civilian Navy Employee Found Guilty of Obstruction and False Statements After Jury Trial

A federal jury today returned a guilty verdict against a civilian employee of the U.S. Navy posted at the Capodichino Navy Base near Naples, Italy, for obstructing an investigation and making false statements, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Nicholas A. Klinefeldt of the Southern District of Iowa.

Steven William Ashton, 41, with a last known U.S. residence in Davenport, Iowa, was found guilty after a nine-day jury trial of creating false documents to obstruct the Naval Criminal Investigative Service (NCIS) investigation into Ashton’s private consulting business called BlackGrid Consulting LLC.  The jury also found Ashton guilty of making false statements about his tour of duty in order to obtain federal benefits and access to military bases worldwide.  

The evidence at trial showed that the NCIS was investigating Ashton for conflicts of interest and using inside government information to advance his business.  When Ashton learned about the investigation, he created fraudulent documentation purporting to show that he had fully disclosed his business to Navy authorities and received approval.  At Ashton’s direction, his defense counsel unwittingly submitted those false documents to the prosecutors and gave other false explanations to the Justice Department.  

According to the evidence presented at trial, from April 2004 to March 2013, Ashton was employed by the Navy as the North Atlantic Treaty Organization and Host Nation Programs Manager for the regions of Europe, Africa and Southwest Asia, responsible for managing contracts and agreements among the Navy and other countries to support the United States’ military efforts.

He was found not guilty on charges of theft of government funds for obtaining housing benefits, called Living Quarters Assistance, to which he was not entitled, and of obstructing that investigation.

This case was investigated by the NCIS and the Air Force Office of Special Investigations.  The case is being prosecuted by Director of Procurement Fraud Litigation Catherine Votaw of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Clifford Cronk of the Southern District of Iowa.

NAVY PETTY OFFICER CHARGED WITH TAKING BRIBES FOR CLASSIFIED AND INTERNAL U.S. NAVY INFORMATION

FROM:  U.S. JUSTICE DEPARTMENT 

Thursday, April 17, 2014

Navy Petty Officer Based in Japan Charged in International Bribery Scandal

A fourth U.S. Navy official has been charged in a complaint unsealed today with accepting cash, luxury travel and consumer electronics from a foreign defense contractor in exchange for classified and internal U.S. Navy information.

Acting Assistant Attorney General David A. O’Neil of the Justice Department’s Criminal Division, U.S. Attorney Laura E. Duffy of the Southern District of California, Director Andrew Traver of the Naval Criminal Investigative Service (NCIS) and Deputy Inspector General for Investigations James B. Burch of the U.S. Department of Defense Office of the Inspector General made the announcement.

Petty Officer First Class Dan Layug, 27, who enlisted in the Navy in September 2006, was arrested on April 16, 2014, in San Diego by special agents with NCIS and Defense Criminal Investigative Service.   Layug made his initial appearance today in federal court before U.S. Magistrate Judge Karen S. Crawford in the Southern District of California.

According to the complaint, Layug received bribes in return for sending sensitive U.S. Navy information to employees of Glenn Defense Marine Asia (GDMA), a defense contractor.   GDMA CEO Leonard Glenn Francis, 49, of Malaysia, had previously been charged with conspiring to bribe U.S. Navy officials, and GDMA executive Alex Wisidagama, 40, of Singapore, pleaded guilty on March 18, 2014, to defrauding the U.S. Navy.   Two other senior Navy officials – Commander Michael Vannak Khem Misiewicz, 46, and Commander Jose Luis Sanchez, 41 – have been charged separately with bribery conspiracies involving Francis and have pleaded not guilty.   On Dec. 17, 2013, Naval Criminal Investigative Service (NCIS) Supervisory Special Agent John Bertrand Beliveau II, 44, pleaded guilty to bribery charges for regularly tipping off Francis to the status of the government’s investigation into GDMA.

According to the complaint, Layug worked secretly on behalf of GDMA by providing classified ship schedules and other sensitive U.S. Navy information in exchange for cash, travel expenses, and consumer electronics.   Court records allege that Layug used his position as a logistics specialist at a U.S. Navy facility in Yokosuka, Japan, to gain access to U.S. Navy ship schedules – some of which were classified – and other internal information, and provided this information to GDMA’s vice president of global operations.   In exchange, court records allege, GDMA provided Layug with regular payments, some of which were delivered in envelopes of cash.  The complaint alleges that on May 21, 2012, the vice president of global operations instructed a GDMA accountant that “at the end of each month, we will be providing an allowance to Mr. Dan Layug.   Total of US $1000.   You may pay him the equivalent in Yen.   He will come by the office at the end of each month to see you.”

Court records allege that, in addition to his monthly “allowance,” Layug sought consumer electronics from GDMA.   In an email on March 9, 2012, Layug asked the vice president of global operations “what are the chances of getting the new Ipad 3 [sic]?   Please let me know.”   In another email exchange on May 28, 2013, Layug asked the vice president of global operations for a “bucket list” of items including a high end camera, an iPhone5 cellular phone, a Samsung S4 cellular phone, and an iPad Mini.   Shortly after sending his “bucket list” to the vice president of global operations, Layug stated in an email that “the camera is awesome bro!   Thanks a lot!   Been a while since I had a new gadget!”

In addition to consumer electronics, GDMA allegedly provided Layug and his friends with rooms at luxury hotels throughout Asia.

According to court documents, Layug allegedly undertook steps to conceal his bribery relationship with GDMA by, among other things, describing classified ship schedules using the code word “golf schedules” and opening a bank account in the name of his infant daughter into which he deposited portions of his “allowance.”

The ongoing investigation is being conducted by NCIS, the Defense Criminal Investigative Service and the Defense Contract Audit Agency.

The case is being prosecuted by Assistant U.S. Attorneys Mark Pletcher and Robert Huie of the Southern District of California, Director of Procurement Fraud Catherine Votaw and Attorney Brian Young of the Criminal Division’s Fraud Section, and Trial Attorney Wade Weems, on detail to the Fraud Section from the Special Inspector General for Afghan Reconstruction.

The charges contained in the criminal complaint are merely allegations, and the defendant is presumed to be not guilty unless and until proven guilty.