WASHINGTON - Xiaodong Sheldon Meng, 42, formerly a resident of Beijing, China, and resident of Cupertino, Calif., pleaded guilty yesterday to violating the Economic Espionage Act (EAA) and violating the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR), announced Assistant Attorney General for National Security Kenneth L. Wainstein and Scott N. Schools U.S. Attorney for the Northern District of California. The defendant entered into a plea agreement whereby he pleaded guilty to Count Five (EEA) and Count Seven (AECA) of a superseding indictment that had been filed on December 13, 2006.
Count Five charged that Meng violated the EEA by possessing a trade secret belonging to Quantum3D, a San Jose company by whom he was formerly employed, intending and knowing that this possession would benefit a foreign government, instrumentality, or agent, namely the People’s Republic of China ("PRC") Navy Research Center.
The trade secret at issue, known as "Mantis," is a Quantum3D product used to simulate real world motion for military training purposes. Meng installed a demonstration unit of Mantis on the PRC Navy site. Meng also altered Mantis to make it appear as if it belonged to ORAD, Meng’s new employer, a competitor of Quantum3D based in PRC. This altered version of Mantis was included as part of the demonstration project in the PRC.
Count Seven charged that defendant Meng knowingly and willfully violated the AECA and ITAR when he exported "viXsen" source code, a Quantum 3D product that is a designated defense article on the United States Munitions List, and for which Meng had no Department of State export license. viXsen is a visual simulation software program used for training military fighter pilots. United States Attorney Scott N. Schools noted that this prosecution is the result of a nearly three-year joint investigation by the U.S. Attorney’s Office Computer Hacking and Intellectual Property (CHIP) Unit, the Federal Bureau of Investigation (FBI), the Department of Homeland Security, Immigration and Customs Enforcement (ICE) - Office of Investigations, as well as Customs & Border Protection (CBP). The Department of State and the Department of Defense also provided valuable assistance on the case.
"This conviction, the first in the nation for illegal exports of military-related source code, demonstrates the importance of safeguarding our nation’s military secrets and should serve notice to others who would compromise our national security for profit," said Assistant Attorney General for National Security Kenneth L. Wainstein. "This case is the latest evidence of the Department’s enhanced investigative and prosecutorial efforts to keep America’s critical technology from falling into the wrong hands."
"One of ICE’s top priorities is ensuring that U.S. military products and sensitive technology does not fall into the hands of those who might inflict harm upon America or its allies," said Julie L. Myers, Department of Homeland Security Assistant Secretary for ICE. "These items, such as the proprietary source code central to this case, are controlled in the interest of national security. We will continue to work with our law enforcement partners and industry to enforce U.S. technology export laws."
"The economic -- and often national -- security of the United States rests largely upon a foundation of technological superiority, and to maintain that superiority our trade secrets must be protected with the fervency with which we guard other vital interests," said Charlene B. Thornton, special agent in charge of the FBI’s San Francisco office. "The successful prosecution of Mr. Meng is a blow to those who seek to circumvent the long and costly process of research and development to gain a technological advantage through lies, deceit, and theft; it is a victory in the struggle to ensure the economic security of Silicon Valley and the United States."
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." The U.S. Attorney’s Offices in the Northern District of Alabama, District of Minnesota, and Middle District of Florida also joined the plea agreement as some of the conduct in the case occurred in those jurisdictions.
Defendant Meng is scheduled to be sentenced before United States District Judge Jeremy Fogel in San Jose on January 23, 2008, at 10:00 a.m. Meng is currently out of custody on $500,000 bond.
Under the terms of the plea agreement, the maximum term of imprisonment is twenty-four months. Meng also is subject to a maximum fine of $500,000 on the Economic Espionage Act conviction and a maximum fine of $1,000,000 on the Arm Export Control Act conviction, and 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.
Mark L. Krotoski is the Assistant U.S. Attorney prosecuting the case out of the CHIP Unit of the United States Attorney’s Office with the assistance of Legal Tech Lori Gomez.
Prior Economic Espionage Prosecutions: According to the U.S. Department of Justice, the Meng case is the second conviction and only the third case charging violation of the Economic Espionage Act (EEA) of 1996, under 18 U.S.C. § 1831. Both EEA convictions have been obtained within the last nine months by the CHIP Unit in the Northern District of California.
• The first economic espionage indictment was returned on May 8, 2001, in the Northern District of Ohio in United States v. Okamoto and Serizawa. (For more information: http://www.usdoj.gov/criminal/cybercrime/Okamoto_SerizawaIndict.htm).
• The second economic espionage 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. The first EEA convictions, involving defendants Ye and Zhong, were obtained on December 14, 2006. (For more information: http://www.usdoj.gov/criminal/cybercrime/yeIndict.htm and http://www.usdoj.gov/usao/can/press/2006/2006_12_14_ye.zhong.plea.press.html).
• The Meng case was the third indictment under the EEA when charges were filed on December 13, 2006. (For more information: http://www.usdoj.gov/usao/can/press/2006/2006_12_14_meng.indictment.press.html)