Piracy ring took software worth $100m

Last updated 13:50 09/01/2013

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Xiang Li was proud of his growing business, his lawyer says.

From his home in central China, he prowled the internet for sophisticated stolen American industrial software - products retailing for an average of US$181,000 - and resold them to black market buyers in 61 countries from 2008 to 2011.

But in 2010 when employees of a Pennsylvania company discovered counterfeit copies of their six-figure Satellite Tool Kit software offered on Li's website for a fraction of the retail price, they alerted US Homeland Security agents, who launched an undercover investigation.

Agents combed through 25,000 of Li's emails and found that he was selling defence, space, environmental and engineering software stolen from 200 US companies. According to the agents' calculations, the retail value of the stolen software Li sold exceeded US$100 million (NZ$119 million).

The sting climaxed in June 2011 with Li's arrest on the Pacific island of Saipan, an American territory near Guam, and on Tuesday senior US officials said that the case represents one of their most significant criminal copyright investigations.

"This was big-time crime, US$100 million in loss revenue," said John Morton, Director of Immigration and Customs Enforcement said at a news conference on Tuesday. "This is organised crime pure and simple."

Morton said US businesses cannot be expected to invest millions of dollars to develop new major software and defense programs, if criminals are able to easily circumvent the protections.

"American jobs, innovations and technology are lost in the process," Morton said. There is no evidence that the Chinese government played any role in Li's operation, Morton added.

Originally charged with 46 counts, Li struck an agreement with prosecutors in which he pleaded guilty Monday to single counts of conspiracy to commit criminal copyright violations and wire fraud.

"What I did was wrong and illegal and I want to say I'm sorry," Li, 36 of Chengdu, told the judge during Monday's hearing at the federal court in Wilmington, Delaware. The Chinese citizen spoke through an interpreter.

US District Judge Leonard Stark set sentencing for May 3. The primary issue at that hearing is likely to be the losses encountered by the victim companies. While prosecutors put that value at US$100 million, Li intends to argue that it was considerably less. The judge will use the loss value to help calculate the sentence, which is likely to fall between two and ten years.

At one point, Li's websites, including www.Crack99.com, contained more than 2000 pirated software titles, prosecutors said. Victims in the case included Microsoft, Oracle, Rockwell Automation, Agilent Technolgoies , Siemens, Delcam, Altera Corp and SAP.

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Li was neither a hacker nor a cracker, but hackers and crackers were essential to his enterprise. A hacker steals a computer software program; a cracker circumvents the passwords that protect the program from access to anyone who hasn't paid the retail price for the product.

Li trolled black market internet forums in search of hacked software, and then found people with the know-how to crack the passwords, Assistant US Attorney David Hall said. He then simply advertised them for sale on his websites. Li transfered the pirated programs to customers by sending compressed files via Gmail, or sent them hyperlinks to download servers.

Li also followed-up with customers by email, helping them resolve password access issues. "He even helped the undercover agents with trouble-shooting," Hall said.

"He was pretty proud of himself," his lawyer, Mingli Chen, said after the court hearing. "He did not realise it was such a big crime."

The Li case involves sophisticated business software, not entertainment software, and thus small quantities of high-priced products. He sold just 550 illicit programs in three years, but - using the government's calculations - the average retail value of each product sold was US$181,000.

The retail value ranged from several hundred dollars to more than US$1 million, officials said. Li sold them online for as little as US$20 to US$1200, according to government court filings.

"Li had contacts around the world, but perhaps most distressingly many in the United States," said US Attorney Charles Oberly III. "You can do a lot of damage selling some of these materials."

Two Americans have pleaded guilty to buying stolen software products were Li's largest US customers, Oberly said. Cosburn Wedderburn, who was a NASA engineer at the Goddard Space Flight Center in Maryland, bought 12 cracked software programs.

The undercover operation against Li was carried out over 18 months by agents from Homeland Security, the Defense Criminal Investigative Service and NASA's Inspector General's office.

For several thousand dollars, the US agents made at least five purchases from Li of software worth US$150,000 at retail.

These included pirated versions of the Satellite Tool Kit by Analytical Graphics of Exton, Pennsylvania, a product prosecutors said is "designed to assist the military, aerospace and intelligence industries through scenario-based modules that simulate real-world situations, such as missile launches, warfare simulations and flight trajectories."

Agents lured Li from China to the US territory of Saipan under the premise of discussing a joint illicit business venture. At an island hotel, Li delivered counterfeit packaging and, prosecutors said, "20 gigabytes of propriety data obtained unlawfully from an American software company." Officials did not identify the company in court documents.

At one point during the meeting undercover agents, including a Chinese-American linguist, asked Li what he did when US companies sent him threatening emails demanding that he stop selling their products.

That's easy, he said. He simply deleted them.

- Reuters


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