Three Men Charged in Multi-Million Dollar Software Piracy Scheme
KANSAS CITY, Mo. – Tammy Dickinson, United States Attorney for the Western District of Missouri, announced today that a Kansas City, Mo., man, a Maryland man and a Denver, Colo., man have been charged in federal court for their roles in one of the largest software piracy schemes ever prosecuted by the U.S. Department of Justice.
The multi-million dollar scheme, with co-conspirators in the People’s Republic of China and across the United States, illegally sold millions of dollars of Microsoft Corporation and Adobe Systems, Inc., software product key codes through a charitable organization and several online businesses. More than $18 million in assets, including luxury automobiles and expensive real estate, have been seized through federal forfeiture complaints. Those affidavits allege that conspirators reaped about $30 million in profits from customers who paid about $90 million for the pirated software.
The federal investigation, which originated in Kansas City, Mo., resulted in several criminal cases being filed within the past week.
Reza Davachi, 41, of Damascus, was charged in a criminal complaint filed under seal in the U.S. District Court in Kansas City, Mo., on Wednesday, June 17, 2015. The complaint, which was unsealed and made public today following Davachi’s arrest and initial court appearance, charges him with participating in a conspiracy to commit the crimes of wire fraud; unauthorized solicitation of access devices; trafficking in illicit labels, counterfeit labels and counterfeit documentation and packaging; and trafficking in counterfeit goods.
In separate but related cases, Casey Lee Ross, 28, of Kansas City, Mo., and Matthew Lockwood, 37, of Denver, each pleaded guilty to their roles in this same conspiracy on June 11, 2015.
Within an hour of his attorney being notified of Ross’s and Lockwood’s guilty pleas last week, Davachi purchased an airline ticket departing Baltimore-Washington International Airport for London (United Kingdom) Heathrow Airport. Davachi was arrested last night when he arrived at the airport to board the plane. Davachi remains in federal custody following his initial court appearance earlier today in the U.S. District Court in Baltimore, Md.
According to an affidavit filed in support of the federal criminal complaint, the investigation began when federal agents in Kansas City, Mo., learned in 2013 that Ross had purchased (and redistributed) tens of thousands of illegitimate and unauthorized Microsoft product key codes and counterfeit product key cards from suspect sources in China. Microsoft product key codes are used to obtain full access to unlocked, licensed versions of various Microsoft copyrighted software programs.
Ross admitted that he purchased approximately 30,159 product key codes and counterfeit product key cards. Ross purchased these product key codes at prices well below that of the estimated retail price. In many cases, the affidavit says, they were distributed on counterfeit card stock intended to make it appear as if they were genuine Microsoft products.
Ross (doing business as Software Slashers) distributed large quantities of these product key codes and counterfeit Microsoft product key cards to Davachi and other co-conspirators in the United States, the affidavit says, who in turn sold the product key codes and counterfeit product key cards through their respective Web sites as well as on e-commerce sites such as eBay or Amazon.
Davachi allegedly obtained these products through various sources, including Ross and known counterfeiters in the China. Davachi allegedly sent numerous wire transfers totaling approximately $672,300 to this suspect source of supply in China. The affidavit details communication between Davachi and these known counterfeiters in China where the design and manufacture of these counterfeit product key cares is discussed.
Davachi, in turn, allegedly supplied other individuals with these counterfeit, illicit and/or unauthorized software products. The affidavit alleges that Davachi received millions of dollars in revenue through these illicit sales.
According to the affidavit, Davachi used a charitable organization called The Sixth Man Foundation, doing business as Project Contact Africa (an eBay charity store) and several businesses (including Rez Candles, Inc., digitaldeliverydownloads.com and checkus1st.com) to sell unauthorized product key codes and counterfeit software product key cards at prices that ranged from a third to a half of the manufacturer’s suggested retail price or estimated retail price.
Davachi allegedly sold millions of dollars of unauthorized product key codes and counterfeit software product key cards through the eBay charity store for Project Contact Africa, a formally registered 501(c)(3) charitable organization. The primary exempt purpose for this charity, according to publicly-available tax filings, is “to support a medical clinic in Africa for needy families and children.” The 501(c)(3) organization relates back to a charity originally formed in the state of Oregon to provide “money, goods, or services to the poor,” and to “provide aid to the Portland (community) Trailblazer fans.”
Davachi allegedly sold thousands of Microsoft products through his Project Contact Africa eBay charity store, which claimed that proceeds from software sales went “100% to charity.” Since its creation in 2004, the affidavit says, the Project Contact Africa eBay charity account has received in excess of $10.4 million in payments and deposits. Publicly-available tax filings filed on behalf of the charity claim a total of $865,972 in contributions over this same period of time.
Microsoft fraud investigators advised federal agents that they were aware of dozens of infringement reports related to Davachi and Rez Candles and that they had sent numerous cease and desist letters. In August of 2010 another software developer, Adobe, sued Davachi and Project Contact Africa for willful copyright and trademark infringement.
According to the affidavit, Davachi engaged in at least 15 transactions with Lockwood (doing business as Discount Mountain, Inc.) for these suspected counterfeit, illicit, and/or unauthorized software and software components, from March 25, 2013, to Feb. 15, 2014, totaling $1,243,570.
In addition to his purchases from Davachi, Lockwood admitted that he paid Ross $1,127,190 for unauthorized product key codes and counterfeit product key cards. Lockwood also admitted that he paid $1,574,054 to unidentified persons in the state of Washington for various software items. Lockwood admitted that he obtained approximately 6,165 certificates of authenticity, 4,996 “Lenovo” product key cards and approximately 11,000 unauthorized product key codes.
Federal agents executed search warrants at Davachi’s residence and principal place of business on Dec. 10, 2014. Agents seized approximately $72,391 in cash, 2,716 mint coins, 665 Canadian mint coins, 164 silver pieces and a 2013 Tesla Model S valued at approximately $71,640. Contraband and counterfeit evidence included thousands of items of counterfeit, illicit, and unauthorized software and software components. There were in excess of 5,000 standalone certificates of authenticity recovered at Davachi’s business and personal residence that were not affixed to, enclosed with, or accompanying their associated copies of the copyrighted Microsoft computer programs.
Dickinson cautioned that the charge contained in the complaint against Davachi is simply an accusation, and not evidence of guilt. Evidence supporting the charge must be presented to a federal trial jury, whose duty is to determine guilt or innocence.
These cases are being prosecuted by Assistant U.S. Attorney Patrick D. Daly; Assistant U.S. Attorney J. Curt Bohling is responsible for the civil proceedings. They were investigated by Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI).