Woman helped sell fake chips to US military

Counterfeits from China and Hong Kong were bought for missile systems, radiation detectors, and radar devices

A Florida woman has pleaded guilty to charges that she helped her employer sell counterfeit computer chips for use by the U.S. military

Stephanie McCloskey, 38, was an administrator at VisionTech Components, a Clearwater, Florida, company that sold military-grade integrated circuits designed to handle extreme temperatures and the shocks and bumps of battlefield use. McCloskey pleaded guilty Friday to a single conspiracy charge. She faces up to five years in prison and a $250,000 fine.

Prosecutors say that VisionTech did more than $15.8 million in business over a three-year period, doctoring and then selling counterfeit integrated circuits imported from Hong Kong and China.

Company employees would scuff up labels to make it impossible to tell if the devices in the box matched the code on the labels and use "large erasers" to polish up the integrated circuits when they arrived in shoddy condition, McCloskey admitted in a Statement of Offense declaration she signed last week in connection with her guilty plea.

The fake chips were sold to many companies, including subcontractors working with big defense suppliers such as Raytheon Missile Systems, BAE Systems, and Northrop Grumman. They were often destined for use in sensitive areas such as missile programs, radiation detectors, and non-military systems such as high-speed trains, the Department of Justice (DoJ) said in court filings.

Many of the chips were used in situations where a system failure would be disastrous.

In December 2009, for example, an unnamed New York company fulfilling a Northrop Grumman contract allegedly bought 350 fake Cypress Semiconductor chips for use in the development of missile defense systems for the U.S. Navy. They were for an antenna beam steering system used by the U.S. Navy Cobra Judy Replacement Program.

Other orders allegedly delivered counterfeit versions of National Semiconductor chips to be used by the Navy to distinguish friendly from hostile aircraft, Altera chips for hand-held nuclear radiation scanners, Motorola processors for controllers in high-speed trains, and 1,500 counterfeit Intel processors for missile components, used in a classified project.

Reached Monday, a U.S. Department of Defense (DoD) spokesman could not immediately comment on the case, but the DoD has previously said that it has not found any cases where counterfeit parts have caused hardware failure or put troops at risk.

But the DoD is struggling to get a handle on the counterfeit parts problem. A March Government Accountability Office report found that while counterfeits "have the potential to seriously disrupt the Department of Defense ... supply chain," the DoD doesn't have adequate processes for spotting and stopping fake components.

More than one counterfeit supplier has popped up in the investigation.

VisionTech did business with a California company called MVP Micro that itself sold thousands of counterfeit chips. A year ago, MVP Micro Operations Manager Neil Felahy pleaded guilty to conspiracy and counterfeiting charges, and he has since been working with the government on its investigation, according to court documents.

Prosecutors say VisionTech purchased close to 60,000 counterfeit chips from its Asian suppliers between Dec. 6, 2006 and Aug. 18, 2010. They cost about $425,000. The company sold fakes versions of chips made by many major chipmakers including Intel, Texas Instruments, Motorola, NEC, National Semiconductor, and others, according to court filings.

McCloskey worked for VisionTech's high-flying owner Shannon Wren, 42, who has also been charged in the case. Wren is a noted builder of customized street-racing cars who was the first man to exceed 200 miles per hour in a Memphis race called the Mid South Shootout, according to an April 2010 profile at Dragzine.com

Authorities seized a number of cars in the case, saying they were the proceeds of criminal activity, including a Mercedes Benz, a Rolls Royce, and a Ferrari Spider 360.

In addition to having signing power on the company's checking account, McCloskey also handled hiring and training of company employees. She was also involved in product returns -- a job that appears to have kept her quite busy. VisionTech handed out more than $1 million in refunds between 2007 and 2009.

In early 2009, when a New York company complained about bad Motorola chips slated for use in an Alstom high-speed train project, Wren wrote back, "Please don't over analyze these parts, anybody can find something wrong with a brand new Ferrari if we look hard enough. Come on guys," according to a grand jury indictment brought against Wren and McCloskey.

No court date has been set for McCloskey's sentencing. Her lawyers did not return messages seeking comment. She has also agreed to forfeit the $166,141 she was paid while working at VisionTech.

No court date has been set in Wren's case either. He and McCloskey were arrested on Sept. 14, but are both now out of jail on bond.

Robert McMillan covers computer security and general technology breaking news for The IDG News Service. Follow Robert on Twitter at @bobmcmillan. Robert's e-mail address is robert_mcmillan@idg.com

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Tags U.S. Department of DefenseU.S. Department of JusticeVisionTech Componentsintellectual propertylegalComponentsprocessorsMVP MicroCriminal

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