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Caught selling fake microchips to the Navy, case reveals counterfeiter 'sales channels'
In a case which casts light on the black market channel for microchips into the military supply chain, two Californians are awaiting sentencing this summer for selling counterfeit electronic parts to the military.
Mustafa Abdul Aljaff and Neil Felahy pleaded guilty in federal court in Washington in January, in a plea agreement with prosecutors for buying counterfeit semiconductors and selling them to the Navy as military-grade components, according to the Orange County, California, local news network (oclnn.com). The initial indictment goes all the way back to 2009, but is just now coming to sentencing.
The two men and a third person, Marwah Felahy, imported semiconducters from China, fraudently labeled as military grade. Marwah Felahy is married to Neil Felahy and was freed as part of the plea agreement.
The stakes are high: military standards demand chips that can stand sustained shake and vibration and extreme temperatures. If they fail, according to a Department of Justice press release on the case, the use of counterfeit integrated circuits "can result in product malfunction or failure, and can also cause serious bodily injury from electrocution and, in some circumstances, death."
In all, $140,835 worth of counterfeit circuits were imported from factories in the notorious microchip manufacturing region at Shenzen, China, fraudently marked with known brands: Fujitsu, Atmel, Intel and Altera.
The indictment details the counterfeiters' production process:
"First, they acquired counterfeit integrated circuits from supply sources in China, imported them into the United States, and sold them to the public via the Internet. Second, they obtained trademark-branded integrated circuits then scraped, sanded, or ground off the original markings, and caused the devices to be remarked with another trademark and other markings thereby fraudulently indicating, among other things, that the devices were of a certain brand, newer, higher quality or were of a certain grade, including military grade. Third, the defendants “harvested” dies from integrated circuits and caused them to be repackaged to appear new, including adding trademarks and other markings indicating that the devices were of a certain brand, higher quality or were of a certain grade."
Adds the web site Politico: "To pass them off as brand-name parts, the companies used semiconductor-grade acetone or melted plastic casings to remove original labels and rebranded them to meet military grade..."
The "front companies" used by the counterfeiters included MVP Micro Inc., Red Hat Distributors and Becker Components Inc. These were awarded a contract by the U.S. Navy which even issued a Certificate of Conformance for the integrated circuits.
The defendants also operated websites, as the DOJ touches on above, which sold integrated circuits into the private sector, including: www.mvpmicro.com, www.labrainc.com, www.rhdistributors.com, and www.pentagoncomponents.com.