Man Pleads Guilty To Selling Fake Chips To US Navy 327
itwbennett writes "Neil Felahy of Newport Coast, California, has pleaded guilty to conspiracy and counterfeit-goods trafficking for his role in a chip-counterfeiting scam. Felahy, along with his wife and her brother, operated several microchip brokerage companies under a variety of names, including MVP Micro, Red Hat Distributors, Force-One Electronics and Pentagon Components. 'They would buy counterfeit chips from China or else take legitimate chips, sand off the brand markings and melt the plastic casings with acid to make them appear to be of higher quality or a different brand,' the US Department of Justice said in a press release. The chips were then sold to Naval Sea Systems Command, the Washington, DC group responsible for maintaining the US Navy's ships and systems, as well as to an unnamed vacuum-cleaner manufacturer in the Midwest."
Balls (Score:3, Interesting)
Scamming someone who can answer the question, "you and what army". Oh okay, so their answer is "not army, marines" but still. Takes guts.
And with the US being involved in two wars, I think the sentence for this might actually be a cigarette, against a nice sunny wall. Blindfold optional.
HOW??? (Score:5, Interesting)
Re:Treason (Score:4, Interesting)
Why does the military buy from minor distributors? (Score:3, Interesting)
The military spends billions of dollars and has the money to buy directly from known, reputable firms like AMD, Siemens, Mitsubishi, NEC, Toshiba, etc. Doing so would ensure the quality of the electronic components.
Why is the military dealing with relatively unknown distributors of suspicious origin? This story is fishy.
The military probably did not intend to use anything "purchased" from unknown distributors. This "purchase", from the onset, was intended to be a honey pot attracting unscrupulous businesses connected to hostile governments like Beijing. The purchased components were never intended to be used. The aim was to find such unscrupulous businesses, to determine the network that Beijing has established in the USA, and to shutdown American traitors who participate in such a network.
Military spec vs commercial (Score:2, Interesting)
The funny thing is that the chip manufacturers commit this same fraud daily. The same silicon is packaged in one package and labeled mil grade, and another labeled commercial grade. The price is often more than a magnitude different. Sometimes it is even the same package, just different print.
Of course sometimes there is different silicone, sometimes it is different temperature bin.
Funny that this is perfectly legal for the mfg. and when some clever reseller does the same it is fraud.
BTW. Companies with military contracts are often required to give the military "best price". With a seperate label for military version of HW, this is really profitable.
Re:uuuh (Score:1, Interesting)
What does counterfeit mean? (Score:2, Interesting)
Is this like "counterfeit" copies of MS Windows? Where these chips that acted and functioned the same (shadow shift production runs)? Seems like we need a better word as counterfeit implies that it looks the same but does not act the same. Maybe we should just be saying "copies produced without authorization?"
Re:Treason (Score:5, Interesting)
Selling fake/incorrect components should be prosecuted as sabotage, because defective components can degrade vital systems and cause casualties.
I wonder how many of these quasi-mil spec... (Score:3, Interesting)
... devices found themselves in things like reactor control systems, missile systems, and other catastrophically lethal stuff?
Maybe the military should be making it's OWN components, instead of buying them from the people they have their guns pointed at.
Re:Treason (Score:3, Interesting)
We could argue intention/motivation, but a crime is a crime, regardless what you meant.
You are aware that laws are based on intention, right? Like how manslaughter and murder are different based on intention?
Re:HOW??? (Score:5, Interesting)
You seem to be assuming that these parts are readily available. Most likely, they have been long obsolete are almost impossible to find, if not truly so. As replacing legacy systems is often very expensive (esp. for the military, where it often isn't an option), such chips can easily go for hundreds of dollars, if not thousands and are only purchased in small quantities. I worked for a small business that needed such replacements for maintenance on a military project, and we got fakes for approx $350 each. Luckily we knew about these scams, tested them, and then got the credit card company to do a charge back.
So, this is rather unsurprising to me, at least for the Navy. Why a vacuum cleaner manufacturer would need such parts I don't know. However, I'm fairly certain these weren't $10 chips that are currently available by the thousand from the manufacturer
Re:Why does the military buy from minor distributo (Score:3, Interesting)
The military doesn't call people up and buy things. They announce a need and people bid. UIf a company doesn't bid then there isn't much they can do about it.
Some larger companies won't deal with smaller contracts.
This story isn't fishy, nore is the use of small companies unusual.
It would be cool if it's a honeyu pot, but the odds of that is really low, and it would need to involve other agencies.
Re:we still make vacumm cleaners? (Score:5, Interesting)
The problem is that the chips will work, but they won't work as well.
Let's look at two amplifiers, a 741 and a 5534. They are both pin-compatible op-amps that do the same job. The LM is $0.56 ($0.13 in bulk) and the 5534 is $1.73 ($0.80 in bulk). The 5534 is a high-performance, low-noise amplifier.
Now, these are both CONSUMER grade chips and two that I just happened to know off the top of my head. Frankly, chips don't get much cheaper than that but you can already see a large price discrepancy. ($670 per 1000 chips.)
Performance under ideal conditions isn't the biggest issue here. They aren't subject to the military or aerospace standards for robustness. Hell, they're probably not even "industrial" grade. Will they withstand a 200G shock? How about extreme temperatures or humidity? Are these chips RoHS or not and marked differently?
Systems using these fraudulent chips would be plagued by problems and would cause the vendors, contractors, and the Navy a huge amount of anguish. It puts people at risk, and the motherfucker should be tried for sedition.
I have to ask, "why bother"? It's not like they wouldn't be making tons of cash from the contract in the first place.
Re:HOW??? (Score:1, Interesting)
In fact, according to the Navy Times on display today at the Exchange, sailors are buying parts themselves, out of their own pockets, to keep shit working. The Navy's procurement system is not only so broken that it enables purchase of counterfeit components, it's so broken it can't necessarily supply even counterfeits. And this with a Trillion dollar deficit. Sheesh.
Re:uuuh (Score:3, Interesting)
The full version might have something to do with the long and storied history of racism, sexism, and exploitation throughout human history.
Interesting. So I'm being punished because of the crimes of my fathers.
Actually, scratch that. My family came to the states from Germany in the 1930s and laid down roots in the Northeast. So they had nothing to do with slavery, Jim Crow or the lack of female voting rights. So, I'm actually being punished for the crimes of dead people just because I have roughly the same melanin levels that they did.
Yeah, that's totally fair and just.
We were burnt as well (Score:5, Interesting)
In 2006-2007 it was a problem to get many parts in the reasonable quality - flash, op-amps, multiplexors.
So we bought a few reels from the second-hand distributor.
As a result flash marked as 32Mb was 2Mb inside, op-amps weren't up to the specs (manufacturer confirm that they were made of written-off dyes), multiplexors were sold as a particular brand with advanced features while indeed were jelly beans for $0.10 a piece.
Thankfully we were able to rework boards before products hit the consumer market.
That was a good lesson for us to never use Chinese distributors for parts
Re:Value Added Reseller (Score:3, Interesting)
Except the only people that it helps are worthless middlemen that know how to game the system.
In my experience I would split the companies into a few groups. First there are the ones that provide services - printing PCBs, building custom cables, assembling and testing racks of equipment, etc. These folks do good work and we would use them regardless of the rules - custom jobs are best done my small companies and even if there were only chains/franchises doing this sort of stuff, we would still choose between them based on the aptitude of whoever was running the local branch, rather than brand. All the rules do is make more hoops for us to jump through, and add cost to the contracting process.
Next there are genuinely small shops/retailers that know their product well, and often offer better prices than the big box shops (like on standard computer cables etc). And of course there are inexpensive online retailers that we all know about. I would very much prefer to use the online sites when I have time to wait for shipping, and then these small local shops when I need something that day, or need to talk to someone.
But the procurement rules make it too much of a damn hassle to use either. Instead we have to use these middle-men who don't know jack-shit about their product, but they know procurement process. I don't consider them to be either small or local either. They have zero local inventory. They only have a couple employees in town, and that is all they need because their entire job is to take our order and then place it with the manufacturer, often screwing it up in the process. So they are small in the sense that they have few employees, but process a huge amount revenue each year. Their sole purpose in existing is to fill the role of a middle man for the government procurement in town - they have no business with anyone else.
These rules don't prevent/discourage anyone from buying from large companies, they just make you put a shim company in the middle when the best/only option is to purchase from big companies.
Re:HOW??? (Score:3, Interesting)
Yep, I have experience with this. I did autopilot repair in the Air Force and most of the systems I worked on were decades old. Most airplanes have a few non-essential parts that fail literally every few weeks because the manufacturing run was contracted out to some company that did a godawful job at re-engineering and manufacturing the part which was originally designed sometime in the 60's.
Around 2000, we had a navigation system test bench that was controlled by a rackmount IBM 8086 PC. (The navigation system was considered "state of the art" then, if that tells you anything.) Well, we all know that hard drives die eventually but this thing lasted an incredible 25 years before a significant number of sectors started to become unreadable. Because the million-dollar bench was mostly useless without the PC, I took it upon myself to find a replacement disk. What a mistake that was... I managed to find one at GREAT expense to American taxpayers and it turned out that the replacement disk was in ever worse shape than the original. Produced another, same result. You just can't buy a new hard disk that old anymore and swapping out whole computer for something a little newer was non-trivial and was against many, many regulations. I finally managed to find one that was advertised as "never used," but I tell you I tried to stay as far away from that bench as possible after that. I sometimes wonder whether its still in use or if the system maintenance was simply contracted out.