First Conviction in the Country Involving Source Code Under the Arms…

First Conviction in the Country Involving Source Code Under the Arms Export
Control Act

WASHINGTON, Aug. 2 LAWFUEL – The Legal Newswire — Xiaodong Sheldon Meng,
42, formerly a resident of Beijing, China, and resident of Cupertino,
Calif., pleaded guilty yesterday to violating the Foreign Economic
Espionage and violating the Arms Export Control Act (AECA) and the
International Traffic in Arms Regulations (ITAR), announced Assistant
Attorney General for National Security Kenneth L. Wainstein and Scott N.
Schools U.S. Attorney for the Northern District of California.

The defendant entered into a plea agreement whereby he pleaded guilty
to Count Five (EEA) and Count Seven (AECA) of a superseding indictment that had been filed on December 13, 2006.

Count Five charged that Meng violated the EEA by possessing a trade
secret belonging to Quantum3D, a San Jose company by whom he was formerly
employed, intending and knowing that this possession would benefit a
foreign government, instrumentality, or agent, namely the People’s Republic of China (“PRC”) Navy Research Center.

The trade secret at issue, known as “Mantis,” is a Quantum3D product
used to simulate real world motion for military training purposes. Meng
installed a demonstration unit of Mantis on the PRC Navy site. Meng also
altered Mantis to make it appear as if it belonged to ORAD, Meng’s new
employer, a competitor of Quantum3D based in PRC. This altered version of
Mantis was included as part of the demonstration project in the PRC.

Count Seven charged that defendant Meng knowingly and willfully
violated the AECA and ITAR when he exported “viXsen” source code, a Quantum
3D product that is a designated defense article on the United States
Munitions List, and for which Meng had no Department of State export
license. viXsen is a visual simulation software program used for training
military fighter pilots.

United States Attorney Scott N. Schools noted that this prosecution is the result of a nearly three-year joint investigation by the U.S.
Attorney’s Office Computer Hacking and Intellectual Property (CHIP) Unit,
the Federal Bureau of Investigation (FBI), the Department of Homeland
Security, Immigration and Customs Enforcement (ICE) — Office of
Investigations, as well as Customs & Border Protection (CBP). The
Department of State and the Department of Defense also provided valuable
assistance on the case.

“This conviction, the first in the nation for illegal exports of
military- related source code, demonstrates the importance of safeguarding
our nation’s military secrets and should serve notice to others who would
compromise our national security for profit,” said Assistant Attorney
General for National Security Kenneth L. Wainstein. “This case is the
latest evidence of the Department’s enhanced investigative and
prosecutorial efforts to keep America’s critical technology from falling
into the wrong hands.”

“One of ICE’s top priorities is ensuring that U.S. military products
and sensitive technology does not fall into the hands of those who might
inflict harm upon America or its allies,” said Julie L. Myers, Department
of Homeland Security Assistant Secretary for ICE. “These items, such as the
proprietary source code stolen and altered by the defendant in this case,
are controlled in the interest of national security. We will continue to
work with our law enforcement partners and industry to enforce U.S.
technology export laws.”

“The economic — and often national — security of the United States
rests largely upon a foundation of technological superiority, and to
maintain that superiority our trade secrets must be protected with the
fervency with which we guard other vital interests,” said Charlene B.
Thornton, special agent in charge of the FBI’s San Francisco office. “The
successful prosecution of Mr. Meng is a blow to those who seek to
circumvent the long and costly process of research and development to gain a technological advantage through lies, deceit, and theft; it is a victory in the struggle to ensure the economic security of Silicon Valley and the
United States.”

Quantum3D, Inc. has cooperated fully in the government’s investigation.

A company official noted that the company “believes that enforcement of
export and trade secret laws is critical to the functioning of our industry and we’re pleased to work with the government in these efforts.”

The U.S. Attorney’s Offices in the Northern District of Alabama,
District of Minnesota, and Middle District of Florida also joined the plea agreement as some of the conduct in the case occurred in those

Defendant Meng is scheduled to be sentenced before United States
District Judge Jeremy Fogel in San Jose on January 23, 2008, at 10:00 a.m. Meng is currently out of custody on $500,000 bond.

Under the terms of the plea agreement, the maximum term of imprisonment
is twenty-four months. Meng also is subject to a maximum fine of $500,000
on the Economic Espionage Act conviction and a maximum fine of $1,000,000
on the Arm Export Control Act conviction, and a three-year term of
supervised release. However, any sentence following conviction would be
imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. S 3553.

Mark L. Krotoski is the Assistant U.S. Attorney prosecuting the case
out of the CHIP Unit of the United States Attorney’s Office with the
assistance of Legal Tech Lori Gomez.

Prior Economic Espionage Prosecutions:

According to the U.S. Department of Justice, the Meng case is the
second conviction and only the third case charging violation of the
Economic Espionage Act (EEA) of 1996, under 18 U.S.C. S 1831. Both EEA
convictions have been obtained within the last nine months by the CHIP Unit in the Northern District of California.
— The first economic espionage indictment was returned on May 8, 2001, in
the Northern District of Ohio in United States v. Okamoto and Serizawa.
(For more information:
— The second economic espionage indictment was filed on December 4, 2002,
by the Northern District of California CHIP Unit in United States v.
Fei Ye and Ming Zhong, CR 02-20145-JW. The first EEA convictions,
involving defendants Ye and Zhong, were obtained on December 14, 2006.
(For more information: and
— The Meng case was the third indictment under the EEA when charges were
filed on December 13, 2006. For more information:

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