Indictment says fake integrated circuits meant for nuclear submarine
Groton — The U.S. Naval Submarine Base on at least three separate occasions received counterfeit semiconductors from Hong Kong or China, though it is unclear whether any of the components wound up on a nuclear submarine.
According to the indictment this week of a military-components distributor who was charged on counts of conspiracy, fraud and trafficking, Peter Picone, 40, of Methuen, Mass., and unidentified co-conspirators shipped the counterfeit integrated circuits to the sub base between November 2011 and February 2012.
At least two of the circuits were intended for active-duty nuclear submarines in Groton, though there was no indication in the indictment whether they actually had been used on board a sub. One was intended for an alarm panel, while another was to be used in a radio-transmission test, the indictment said.
“I have to buy China and risk fake parts to compete. … It’s my whole biz,” the indictment quotes Picone as saying in a 2008 instant message.
The indictment also tied Picone — who owns Epic International Electronics and once headed electronics distributor Tytronix Inc., both based in Massachusetts — to the shipment of other counterfeit products from Hong Kong or China to unidentified Connecticut customers. In addition, a defense contractor in Florida bought 33 integrated circuits from one of Picone’s companies to be used during repair work on an active-duty nuclear submarine’s secondary propulsion system, the indictment said.
The counterfeit parts that Picone sold to the Navy and to military contractors bore the trademarks of legitimate companies such as Xilinx Inc., National Semiconductor Inc. and Motorola Inc., all of Massachusetts, the indictment said.
In April 2012, shortly after the final shipment to the Groton sub base, investigators raided Picone’s home office in Methuen, hauling away boxes of evidence as part of a criminal investigation, according to a report at the time in The Eagle-Tribune of Lawrence, Mass.
According to the indictment, the existence of counterfeit semiconductors raises national security concerns.
“Counterfeits can contain malicious code or hidden back doors enabling remote systems disablement, communication interception and computer network intrusion,” the indictment said.
In addition, counterfeit parts are not put through the rigorous testing required for military applications. Malfunctions of such devices can result in serious property damage while putting military personnel at risk of bodily harm or even death, the indictment said.
The issue of counterfeit Chinese semiconductors found in U.S. military applications came to national attention in 2011 when the Senate Armed Services Committee held hearings about the dangers. Estimates at the time said up to 15 percent of all spare and replacement semiconductors purchased by the Pentagon were counterfeit, and allegations surfaced that the Chinese government was inclined to look the other way.
Pat Dolan, director of communications for the Washington-based Naval Sea Systems Command, said in a phone interview that Electric Boat is responsible for testing parts the sub base receives from subcontractors.
“It’s what we require of them,” she said.
Adding that she didn’t want to jeopardize the federal court case, Dolan said she could not comment on whether the counterfeit parts ever made their way onto a nuclear sub.
Electric Boat also declined comment, with spokesman Robert Hamilton pointing out that the Picone case is still under active investigation.
Picone’s arrest followed a joint probe by the Homeland Security Investigations division of the U.S. Immigration and Customs Enforcement agency, the Defense Criminal Investigative Service and the Naval Criminal Investigative Service.
The indictment said U.S. Customs seized nearly 14,000 counterfeit integrated circuits between February 2007 and November 2011 that had been sent to the address of one of Picone’s companies in Methuen.
The indictment seeks about $2.6 million in penalties to recoup money that Picone allegedly made during the course of conspiracy, trafficking and fraud related to the sale of counterfeit military goods. It also suggests a fine of more than $1.7 million related to alleged money laundering conducted as part of the scheme.
The eight-count indictment against Picone charges him with conspiring to traffic in counterfeit goods, conspiring to traffic in counterfeit military goods, trafficking in counterfeit goods, conspiring to commit wire fraud, wire fraud and conspiring to commit money laundering. A federal grand jury in New Haven returned the indictment June 25. It was unsealed Monday.
“Picone went to great lengths to conceal the true origin of counterfeit semiconductors in order to sell the devices as seemingly legitimate and reliable components for use in nuclear submarines and other complex machinery,” Acting Assistant Attorney General Mythili Raman said in a statement.
Picone was arraigned before U.S. Magistrate Judge Donna F. Martinez in Hartford and has been released on bond. A trial is scheduled Sept. 9 before U.S. District Judge Alvin W. Thompson in Hartford.
The charges against Picone carry maximum sentences of from five to 20 years. He could be sentenced to up to 75 years in federal prison if convicted on all counts.