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Woman helped sell fake chips to US military

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

By , IDG News Service
November 23, 2010 04:31 AM ET

IDG News Service - 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.

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