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FORMER VANCOUVER AREA MAN SENTENCED TO FIVE YEARS IN PRISON FOR CONSPIRACY INVOLVING COUNTERFEIT SOFTWARE AND MONEY LAUNDERING
Web of Companies Sold up to $20 million of Microsoft Software with Altered Licenses

FOR IMMEDIATE RELEASE
November 29, 2006

SCOTT LANEY, 35, formerly of Battle Ground, Washington, was sentenced today to five years in prison, three years of supervised release and $9.4 million in restitution for Conspiracy to Traffic in Counterfeit Labels and Computer Program Documentation, and Conspiracy to Engage in Money Laundering. U.S. District Judge Franklin D. Burgess sentenced LANEY today following his guilty plea to both charges on February 23, 2006. LANEY now lives in Ogden, Utah.

According to documents filed in the case, SCOTT LANEY and co-conspirator TOBIAS GRACE, of Vancouver, Washington, entered into a conspiracy involving the sale of Microsoft software with fraudulent licenses. Some of the software was originally labeled “Academic Edition –Not for Resale,” and others were labeled “Original Equipment Manufacture (OEM).” The software was obtained by LANEY and GRACE at well below wholesale or retail prices, the labels and/or licenses were then altered to make the software appear to be a full retail product, and then resold to an unsuspecting public at prices approaching the retail value of the product. In other instances, software licenses for expensive server software products were altered to authorize a larger number of users than originally provided for, and resold at significantly higher prices to an unsuspecting public. LANEY admits he and his co-conspirators sold as much as $20 million worth of counterfeit labeled software or software licenses.

The scheme victimized people in two ways. First, those who purchased this software thought they were getting a product with full support from the manufacturer (e.g., Microsoft and other computer software manufacturers). These customers only discovered it was not a legitimate product when they called the manufacturer’s customer support for assistance. As a result, the software often became essentially worthless. Second the activity harmed the manufacturer (e.g., Microsoft and other computer software manufacturers) because each sale of the counterfeit labeled software by LANEY and his co-conspirators represents a lost sale to the manufacturer. Microsoft alone alleges that it lost at least $12.41 million as a result of the crimes in this case.

LANEY and GRACE set up a web of companies to re-label and sell the software. An analysis of their bank accounts show as much as $35 million passed through in connection with this scheme. At the warehouses raided in connection with the case, agents found as much as $65 million in software. Even though LANEY and GRACE had been warned on multiple occasions that what they were doing was illegal, they continued in their illegal activity unabated. For example, an undercover investigator working for Microsoft purchased some software with counterfeit licenses from one of the pair’s companies in 2003. Microsoft sent the company, Smart Software Sales, a letter warning them to cease and desist. The two did not stop their activities even after employees quit, expressing concerns that what they were doing was not legal.

Some of the software purchased and resold by LANEY and GRACE came from Microsoft employees who exploited a flaw in an internal ordering system. These employees ordered the software and sold it to LANEY and GRACE at a fraction of its retail price. Many of these employees have also been criminally convicted and sentenced to prison for their illegal activities. TOBIAS GRACE is scheduled for sentencing on January 19, 2007.

In asking for a lengthy sentence, Assistant United States Attorney Annette Hayes pointed out in her sentencing memo the damage done to the U.S. economy by intellectual property crimes. “Total losses suffered by U.S. industries due to their products being counterfeited is estimated at between $200 and $250 billion per year, costing 750,000 jobs,” Hayes wrote, citing a study by the U.S. Chamber of Commerce.

The case was investigated by the FBI, Immigration and Customs Enforcement (ICE) and Internal Revenue Service Criminal Investigations (IRS-CI). The case was prosecuted by Assistant United States Attorney Annette L. Hayes.

For additional information please contact Emily Langlie, Public Affairs Officer for the United States Attorney’s Office, at (206) 553-4110.


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