FBI: Two Individuals (one from Walnut Creek) Found Guilty in Conspiracy to Sell Trade Secrets to Chinese Companies

March 6, 2014 8:00 am · 30 comments

A federal jury in San Francisco has found two individuals, one from Walnut Creek, and one company guilty of economic espionage, theft of trade secrets, bankruptcy fraud, tax evasion, and obstruction of justice for their roles in a long-running effort to obtain U.S. trade secrets for the benefit of companies controlled by the government of the People’s Republic of China (PRC), announced U.S. Attorney Melinda Haag.

The jury found that Walter Lian-Heen Liew (aka Liu Yuanxuan), of Walnut Creek; his company, USA Performance Technology Inc. (USAPTI); and Robert Maegerle conspired to steal trade secrets from E.I. du Pont de Nemours & Company regarding their chloride-route titanium dioxide production technology and sold those secrets for large sums of money to state-owned companies of the PRC. The purpose of their conspiracy was to help those companies develop large-scale chloride-route titanium dioxide production capability in the PRC, including a planned 100,000-ton titanium dioxide factory in Chongqing.

This case marks the first federal jury conviction on charges brought under the Economic Espionage Act of 1996.

The following information is from the FBI:

“Fighting economic espionage and trade secret theft is one of the top priorities of this office, and we will aggressively pursue anyone, anywhere, who attempts to steal valuable information from the United States,” said U.S. Attorney Melinda Haag. “As today’s verdict demonstrates, foreign governments threaten our economic and national security by engaging in aggressive and determined efforts to steal U.S. intellectual property. I commend the efforts of the women and men of the FBI and the IRS in protecting America’s businesses and our national security.”

“The theft of America’s trade secrets for the benefit of a foreign government poses a substantial threat to our economic and national security,” said Acting Assistant Attorney General John Carlin. “Today’s verdict clearly demonstrates that we take this threat seriously. This case shows that we will not hesitate to pursue and prosecute those who steal from American businesses.”

“The battle against economic espionage has become one of the FBI’s main fronts in its efforts to protect U.S. national security in the 21st century,” said Special Agent in Charge David Johnson.

“This is a case about lying, cheating, and stealing,” said José M. Martínez, Special Agent in Charge, IRS-Criminal Investigation. “The defendants stole secrets, lied to the bankruptcy court, and cheated the IRS and creditors. In today’s economic environment, it’s more important than ever that the American people feel confident that everyone is playing by the rules and paying their fair share.”

The jury also found that Liew, USAPTI, and Maegerle obstructed justice during the course of their conspiracy. The jury found that Liew filed false tax returns for USAPTI and Performance Group, a predecessor company to USAPTI, and made false statements and oaths in bankruptcy proceedings for Performance Group. The guilty verdicts followed a seven-week jury trial before the Honorable Jeffery S. White of the Northern District of California.

Liew, 56, was convicted of conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets, attempted economic espionage, attempted theft of trade secrets, possession of trade secrets, conveying trade secrets, conspiracy to obstruct justice, witness tampering, conspiracy to tamper with evidence, false statements, filing false tax returns, false statements in bankruptcy proceedings, and false oath in bankruptcy proceedings. Liew was an owner and president of USAPTI, a company headquartered in Oakland, California, that offered consulting services. USAPTI was found guilty of conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets, attempted economic espionage, attempted theft of trade secrets, possession of trade secrets, conveying trade secrets, and conspiracy to obstruct justice.

Evidence at trial showed that in the 1990s, Liew met with the government of the PRC and was informed that the PRC had prioritized the development of chloride-route titanium dioxide (TiO2) technology. TiO2 is a commercially valuable white pigment with numerous uses, including coloring paint, plastics, and paper. DuPont’s TiO2 chloride-route process also produces titanium tetrachloride, a material with military and aerospace uses. Liew was aware that DuPont had developed industry-leading TiO2 technology over many years of research and development and assembled a team of former DuPont employees, including Robert Maegerle, to assist him in his efforts to convey DuPont’s TiO2 technology to entities in the PRC. Liew executed contracts with state-owned entities of the PRC for chloride-route TiO2 projects that relied on the transfer of illegally obtained DuPont technology. Liew, Maegerle, and USAPTI obtained and sold DuPont’s TiO2 trade secret to the Pangang Group companies for more than $20 million.

Robert Maegerle, 78, of Harbeson, Delaware, was found guilty of conspiracy to commit theft of trade secrets, attempted theft of trade secrets, conveying trade secrets, and conspiracy to obstruct justice. Evidence at trial showed that Maegerle was employed by DuPont as an engineer from 1956 to 1991, where he had developed detailed knowledge of DuPont’s TiO2 technology and expertise in building TiO2 production lines. He also had access to DuPont TiO2 trade secrets, including specific information regarding DuPont’s TiO2 facility at Kuan Yin, Taiwan. He provided these trade secrets to Liew and USAPTI in furtherance of their contracts with state-owned companies of the PRC for chloride-route TiO2 projects.

The jury also found Liew, Maegerle, and USAPTI guilty of obstructing justice by causing an answer to be filed in a federal civil lawsuit in which they falsely claimed that no information from DuPont’s Kuan Yin plant was used in the USAPTI designs for the development of TiO2 manufacturing facilities. Liew was also found guilty of witness tampering for his efforts to influence a co-defendant’s testimony in the civil lawsuit. The jury also convicted Liew of conspiring with his wife, Christina Liew, to mislead the FBI by corruptly concealing records, documents, and other objects during the FBI’s investigation into their criminal activity.

Liew was also convicted of filing a false income tax return for his company, Performance Group, for calendar years 2006, 2007, and 2008 and for USAPTI in 2009 and 2010. The jury also found Liew guilty of making false statements and a false oath in connection with filing for bankruptcy for Performance Group in 2009.

Liew, as co-owner of USAPTI, entered into contracts worth in excess of $20 million to convey TiO2 trade secret technology to Pangang Group companies. The Liews received millions of dollars of proceeds from these contracts. The proceeds were wired through the United States, Singapore, and ultimately back into several bank accounts in the PRC in the names of relatives of Christina Liew.

DuPont is a company based in Wilmington, Delaware, that manufactures a wide variety of products, including TiO2. DuPont invented the chloride-route process for manufacturing TiO2 in the late-1940s and since then has invested heavily in research and development to improve that production process. The global titanium dioxide market has been valued at roughly $12 billion per year, and DuPont has the largest share of that market.

The chloride-route process is cleaner, more efficient, and produces a higher-quality product than the sulfate-route process prevalent in the PRC. The object of the defendants’ conspiracy was to convey DuPont’s secret chloride-route technology to the PRC companies for the purpose of building modern TiO2 production facilities in the PRC without investing in time-consuming, costly research and development.

The second superseding indictment also charges Liew’s wife, Christina Hong Qiao Liew (aka Qiao Hong), with conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets, attempted theft of trade secrets, possession of trade secrets, witness tampering, conspiracy to tamper with evidence, and false statements. The charges against Ms. Liew were severed from those against Walter Liew, Maegerle, and USAPTI. Ms. Liew will appear before the Honorable Jeffery S. White on Thursday, March 6, 2014, in San Francisco to set the date for her trial.

Tze Chao (aka Zhao Zhi), a former DuPont employee who was also charged in the second superseding indictment, pleaded guilty to conspiracy to commit economic espionage on March 1, 2012.

Hou Shengdong, the vice director of the Chloride Process TiO2 Project Department for the Pangang Group, was also charged in the second superseding indictment with conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets, and attempted economic espionage. He is currently a fugitive.

Charges of conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets, and attempted economic espionage are also pending against the four PRC state-owned companies charged in the second superseding indictment.

The sentencing hearings for Liew, Maegerle, and USAPTI are scheduled for June 10, 2014, before Judge White in Oakland

{ 30 comments }

1 That one guy March 6, 2014 at 8:14 AM

Word? O_o

2 I'm shocked, shocked. March 6, 2014 at 8:27 AM

Remember, most Han Chinese believe that their race is superior to all others and value trickery as a virtue. Don’t ever trust a Chinese person with a secret you don’t want getting sold to the Chinese government. They
Just don’t see that kind of thing as wrong.

3 Love USA March 6, 2014 at 8:34 AM

Bad boys

4 Jojo Potato March 6, 2014 at 8:59 AM

Wow! I also read in the Mercury about the wife’s involvement including the secret safe deposit box full of incriminating documents. This stuff is serious, folks. China seems to have no qualms about stealing anything and everything. This was a Chinese government project, not just some guy out for some cash. Notice how the long time Dupont employee was an accomplice. Disgusting all around.

5 Dorothy March 6, 2014 at 9:15 AM

I thought stealing trade secrets and selling them was already illegal. I guess it depends on who does what, when, where, and to whom – the why is usually for money.

6 CrankCord Doug March 6, 2014 at 9:23 AM

Damn, Walnut Creek even has a better class of criminals. All Concord has is gas thieves, drug addicts and prostitutes.

7 Traitors March 6, 2014 at 9:27 AM

should be shot.

8 Must be Thursday March 6, 2014 at 10:03 AM

Praying for the “character challenged.” We’re all sinners…..

9 Ricardoh March 6, 2014 at 10:05 AM

How many Chinese have stolen info from every lab in the US. Why don’t we just tell them, “Hey come over here we have something for you”.

10 The4thBore March 6, 2014 at 10:19 AM

Deport the whole family as a message that these types of criminal activities have large ramifications. China is leeching the world intellectual properties one at a time until they can manufacture almost anything without any outside assistance.

11 The Grant March 6, 2014 at 10:37 AM

Confucious says…only emulate, nothing more….

On a serious note, try these individuals as traitors and hang them both in the town square.

12 Don't trust any of them March 6, 2014 at 10:51 AM

Think about how great our country was until they opened the borders to everyone, and even those they didn’t open them to but came across illegally. Our economy was great, barely any crime, we had a government we could trust and look at it now.
We are soon going to be the minority in this country, most of the people coming in from other countries are here to do us wrong. So I say don’t trust any of them, I don’t.
Say what you want but think about it, and pay attention.

13 @Don't trust any of them March 6, 2014 at 11:26 AM

Think about how great our country was until …the white man arrived.

Geronimo

14 Kirkwood March 6, 2014 at 11:32 AM

Industrial espionage by the Chinese in the U.S. has been rampant since the cold war. American companies, especially in Silicon Valley hire Chinese nationals, scientists and engineers because there are not enough qualified Americans. The same applies to companies hiring workers from India and other emerging Asian nations.

15 just a concordian March 6, 2014 at 11:38 AM

@Don’t trust any of them
@@Don’t trust any of them

I’m white and an immigrant. Which extermination camp should I report to?

16 Wait a second there, March 6, 2014 at 12:00 PM

@no.12,that’s what the indigenous occupants said
when Europeans showed up.
And how can you people think that we(Americans) aren’t
doing the same thing all over the world!
Even the regular “questionable” posters here can’t
be that naive.

17 Chicken little March 6, 2014 at 12:02 PM

how many illegals are here to do us in? Why are people so money hungry and evil now ?

18 Suzanne March 6, 2014 at 12:22 PM

Traitors should be quartered. But the reality is #12 is right. Most illegals are here to do harm and even some of those that are here legally. Trust none of them.

19 Michelle March 6, 2014 at 12:52 PM

Traitors need to go directly to the execution chamber, like they do in the military.

20 Cowellian March 6, 2014 at 1:37 PM

The military hasn’t executed anyone since 1961. Traitors in this country tend to get Life Achievement Awards instead of justice.

21 PH Dad March 6, 2014 at 2:03 PM

I’ve heard from intelligence people that the way to tell if a Chinese national is a spy is simple. If they have a family member living in the PRC, then they are corruptible…

22 Anon March 6, 2014 at 6:19 PM

Too bad we don’t have a death penalty. I bet if they had beaten up a guy, they’d get the death penalty.

23 caskydiver March 6, 2014 at 7:54 PM

I hope the sentence is harsh. Economic “white collar” crimes are just as damaging to this country as terrorist acts, hijackings, etc. I would hope the sentence includes hard labor for many years.

24 wait... March 6, 2014 at 8:57 PM

So it’s been the official policy of this country, at least of the repubs and democrats, to do everything we can to aid and abet the Red Chinese, fall all over ourselves to shut down all our manufacturing and in some cases LITERALLY ship our factories over there, and these guys are getting busted for going with the program why?

25 Anonymous March 6, 2014 at 9:52 PM

I sat on the jury for this case. Seven weeks of testimony. The evidence against these men was overwhelming. The defense was a game of distraction, and more of a horse and pony show, or the pea and cups game, where’s the pea? Distraction. Sad to think that those highly paid lawyers actually thought the jury was not intelligent enough to see through their act. Some of the testimony presented by the defense to me only convinced me more of their guilt than exonerate them.

Don’t label Walnut Creek. This local man was an Orinda resident and his family moved to Walnut Creek after his arrest. He has been in the Alameda County Jail since August 2011. His family most likely sold the Orinda residence to pay for the trial, and then moved over to Walnut Creek. Don’t feel sorry for them. $28 million dollars is hidden somewhere in China and U.S. taxes was never paid on that money. In fact his corporation filed bankruptcy and claimed no income in years when he clearly made in excess of $7 million. Contracts and employees went unpaid when he was arrested and his business fell apart and closed.

His wife was present almost daily in the gallery of the courtroom. I had always wondered why she too was not sitting there on trial. Remember jury members cannot research the case, or watch or read any news reports. It wasn’t until just yesterday when released from service that I could look into it and see that she was indicted, has plead not guilty, and will be going on trial, the date has not been set yet. For charges almost identical to those mentioned above that her husband was accused of.

The defense tried to make us believe that every piece of information was obtained from publicly available U.S. Patents, and from photos from Google Earth of DuPont TiO2 plants, and some other photos from pamphlets, etc. But in reality, I realized that I had no doubt that this man saw the need for this information in China, and China’s desire to gain the ability to produce this product and take over DuPont’s role as the world’s top producer of this product. I don’t doubt that he tried to learn how to do this. How to make this plant, how to make all the parts of the plant work. But we learned through testimony that even with the knowledge, and the best engineers, it still takes years. So much is trial and error. DuPont has been producing this product since like the 1940s, they had perfected the perfect way to do it. Some of the equipment in their plants is so specialized that even though the making of the equipment is done by subcontractors, no one contractor makes the entire piece of equipment. They will have like 3 or more make it. Each subcontractor will make just one part of the equipment and ship it off to DuPont. Then DuPont employees will put all the parts together. All to keep a subcontractor from duplicating DuPont’s equipment and selling it to a competitor.

I imagine that when China calls you on the phone and tells you that they want something, they want it NOW! They don’t want years and years of research, and trial and error. Although mountains of patent research was presented, and the defense told us that this binder was really old and yellowed as if to prove this man had spent years and years learning how to do this, that he didn’t need to steal the technology from DuPont. I just didn’t believe it. For one, the pages they showed me with patents on them were not yellowed. And secondly, the FBI did not seize these binders during their warrant search of the office. I felt pages were added to the binder after DuPont began investigating them for their civil law suit. Or added after the FBI search. We were told that once DuPont started investigating them all computer files with any reference to DuPont was deleted from their computers. This guy was paying mechanical engineers to sit in the office and delete files. If he felt that he had done nothing wrong, why was he deleting files? And who uses mechanical engineers to do this kind of work? Someone who is frantically instructing employees to stop all work, and help me cover this up! He was paying another engineer to download as many DuPont patents as he could find. And paying yet another engineer to sit and read hundreds of pages of Fortran code because he wanted the guy to learn the code. The Fortran code was in a document stolen from DuPont, and was full of information, but none of them knew how to read it.

Knowing that millions could be made by building TiO2 plants in China that used the DuPont technology, and it was just impossible to figure out how to do it in a timely manner, it became just too easy to buy the technology from a retired DuPont executive that just happened to have in his possession documents, and flow sheets, plant blueprints, and all the needed calculations and specifications, diameters, percentage, pipe lengths, stack heights, cool time, flow rate, slot sizes, nozzle sizes, etc. All the things one needs to know that you just can’t get off Google Earth, or any photo. And this retired employee seemed to be just a little bit disgruntled. He had worked there for 38 years. Was highly intelligent, very much respected. He at one point even worked on a team for DuPont that was working to tighten security. They realized the dangers of information falling into subcontractor’s hands. All kinds of security was put in place. He had also worked for years on the design for a TiO2 plant in Korea. Years of work for a plant that never came into existence. DuPont opted to build a plant in China instead. That probably made him just a little bit angry. Many employees were offered early retirement with a very nice retirement package, and he took it. I am not sure if it really was what he wanted. In testimony he did tell one witness at one point that DuPont may own work that he did for them on paper, but they don’t own his mind. Like he was mad about it. Yet another witness, another DuPont employee told us that he has so much proprietary information in his head and it will stay in his head forever!

This man and wife with their Oakland company,USAPTI, along with hiring several ex-DuPont employees to consult, or err sell to them proprietary information from DuPont, were able to sign contracts with the Pangang Group in China which is a state owned enterprise to build TiO2 plants. They built a 30K tons per year plant, and was in the process of starting production of the 100K tons per year plant when they were arrested. They were paid over a period of time some $28 million U.S. dollars that was never claimed as income and never paid taxes on. The money was sent to Singapore and then sent to shell companies in China that were all owned by the wife’s relatives but ironically her husband, the defendant had signatory control over all the money in those companies.

These men were caught red handed just like a kid with his hand in the cookie jar. How the defense can claim that there just wasn’t any evidence against their clients is almost insulting. How can a 3′ X 4′ blueprint of a DuPont plant that is stamped DuPont on it, that is stamped Confidential that is found in the defendant’s closet of his home office not be evidence? Like evidence was found in the Oakland office, on their computer’s and in the bank safe deposit box. Likewise with a big basic data document that was full of computer code and all the specifications and calculations again stamped Dupont Confidential. And emails and notes where the defendant talks about how even using stolen prints, he still needs help getting the correct calculations to use.

Two men, realizing it was just too easy to make money the easy way. The illegal way. One bought it, the other turned it over willingly for profit knowing it was wrong, knowing he had signed confidentiality agreements with DuPont. These are two very highly educated, intelligent, men. They surely knew something we all learn in kindergarten, which is right from wrong.They chose wrong, and they got caught. I feel bad for the old guy’s ailing wife. I feel bad for the young son of the business man who will now see his mother go on trial next. But as a juror, we are instructed to not allow sympathy to alter our decision. Even though the defense kept pointing out that the older guy had a sick wife with a nurse present when the FBI invaded his home, that there was a wheelchair ramp in front. Even though the other wife brought the young son to court with her that last week of trial, as if to show him off to the jury. Well, it didn’t work. His dad knew right from wrong, and he made the wrong choice. It sucks that he did. It sucks that that boy had to watch that. It sucks that the old sick woman may never see her husband outside of jail bars again. It sucks that 16 jurors spent 7 weeks of their life in San Francisco sitting on a jury for their trial when we all had other things to do. Many losing income during that time. No one wins. Not the Oakland USAPTI employees that lost their jobs, and never got their last two paychecks which for some was some $7,000.

Kudos to the FBI for years and years of investigation they spent gathering all the information they needed to request a search warrant and move forward with this case. I don’t think the average American citizen even realizes all the hard, countless, hours of work they do. I have a new respect for them.

26 hi ho the dairio March 6, 2014 at 11:47 PM

@ #25
Wow… Thanks for your input. I am shocked and saddened by the greed and behavior of these individuals. I too have a new found respect for the FBI. I might even have a tad bit of jury envy. My last jury assignment was a real sleeper.

27 nytemuvr March 7, 2014 at 12:09 AM

My father was the maintenance supervisor in Antioch when they were producing TiO2 from the end of the Korean War to about 1967. It is a very complicated process.They also made tetra-ethyl lead for gasoline. The Chinese have stolen so much information and used it against us, as in bringing something to market dirt-chip and usually low grade. This product is a whitening agent for everything from toothpaste, paper, paint, and even Oreo cookie filling. I’m sure incidents like this has happened over the years and will continue at companies while never being reported so as to “keep it in the family”. I’m not sure NAFTA caused this or was a ongoing way of business previously. It’s easy and cheap to make hazardous materials and chemicals in other countries as their pollution laws are sorely lacking or non-existent.

28 Connie Dobbs March 7, 2014 at 6:58 AM

#17 Hey, we leave the money lying around. They’re just picking it up.

29 Anonymous March 7, 2014 at 9:43 AM

TiO2 is huge! Like #27 said. It is a base used for making a pure white product. Not many things in nature are pure white, cotton it one that is. So man has to make it white. How do you make it white? Pure white? Man has figured out how. TiO2. There are several processes out there. But DuPont has come up with the best way. Most of the ways use high grade ore, which is more expensive. DuPont’s TiO2 by Chloride Route process uses low grade ore, which is less expensive and a cleaner way to make the product. Then there are many different final versions of the product. A food grade like for the center of the Oreo cookie to make it a pure white. Or a powdered version, a paste type version, pellet type. What ever the end manufacturer needs for their type of product.

Huge uses of it today aside from being a base in paint, not just house paint, but in artist’s paint as well is the ever popular vinyl windows. What color are they? Would homeowners want dingy white? Same thing with Apple iPhone cases, iPad cases, and computers when they had the white ones. Bright pure white. A dingy, dull iPhone case/cover just wouldn’t cut it.

China had tried to buy this technology from DuPont. DuPont does not sell or license its technology. So this man claimed to China that he had mastered the technology, “The DuPont way.” That was the clincher with China. Others were approaching China with contracts, but it was not the “DuPont” way.

#27, yes I feared it was going to be a really, dry, technical, and boring case. We were told that there would be Chinese interpreters. But really only one witness used an interpreter. My initial thought was great, not only boring, technical testimony, but in another language at that, ugh.

There was some monotonous parts of the trial with too much repetition on certain evidence, but that is with any trial. It turned out to more interesting than I thought it would be. And I forever am grateful that it was just a white collar crime and that I never had to view horrible photos of injured or deceased people from some terrible criminal case of homicide or drunken driving. Photos present images in your brain that you can never un-see. I do feel fortunate that I was not subjected to that type of trial.

30 J. March 7, 2014 at 12:22 PM

Comments on this entry are closed.

Previous post:

Next post: