Lodi, NJ News

Chinese national arrested in Lodi by feds for theft of trade secrets

computer discs
theft of trade secrets in Lodi
Yan Zhu, a Chinese citizen in the United States on a work visa, was arrested by FBI agents at his Lodi residence on Thursday, April 9 on charges of theft of trade secrets, conspiracy, wire fraud, and theft of honest services fraud.

The investigation, code named "Westerly Winds", began in November based on a complaint from the victim company.

According to the criminal complaint filed in federal district court in Trenton, Zhu, 31, was employed at the victim company as a senior environmental engineer from May of 2006 until his termination last July. The company is a comprehensive multi-media environmental information management portal that developed a proprietary software program for the Chinese market which allows users to manage air emissions, ambient water quality, and ground water quality.

The program's source code was protected through encryption as well as restricted security access within the company, in an effort to protect its commercial value and future revenue derived from software sales and upgrades.

Zhu had signed employment, confidentiality, and non-disclosure agreements as part of the company's hiring process, as well as an agreement to return all confidential and proprietary information, including source codes, upon his termination. Additionally, Zhu signed a notarized affidavit stating that he had not provided the company's source codes to anyone and had returned all copies of confidential company information in his possession.

The criminal complaint alleges that Zhu had two co-conspirators, both Chinese nationals residing in China, who were associated with another environmental software company in China, "Company X".

Based on information in the criminal complaint, it appears that Zhu and his co-conspirators took advantage of the trust placed in them by the victim company, by exploiting an opportunity for the company to market its product to the Chinese government.

Four months after Zhu's firing, on November 10, 2008, representatives of the victim company found a link on Shanxi Province’s web site to a program described as a multi-media environmental system — very similar to a description used to describe the company's software. When they followed this link, it was discovered that the software allegedly consisted of an operational version of a module of the company's software, but it had been changed from the original version the company had provided to Shanxi Province. According to the company, these changes could not have been made without its source codes.

The company then called the designers of their software into a meeting where they were shown the software on the Shanxi Province web site. These employees allegedly recognized the software on the web site as their own.

In October, the same Chinese government entity that had expressed an interest in the software in January 2008 made a public announcement that they had agreed to purchase software from Company X for a specified figure that was approximately one-tenth of what the victim company had sought for their software, according to the criminal complaint.

Zhu appeared on Thursday, April 9 before the Honorable Tonianne J. Bongiovanni, United States Magistrate Judge, in District Court in Trenton, New Jersey. He was remanded pending a detention hearing on Monday, April 13 and faces up to ten years imprisonment on the charges of theft of trade secrets and conspiracy, and up to 20 years imprisonment on the eight counts of wire fraud and theft of honest services fraud.

FBI Special Agent in Charge Weysan Dun said, "Crimes of this nature do not get much public attention. No one is shot, there is no crime scene, no prominent public figures are involved. However, this is an act of economic violence — a paper crime that robs the victim company of the resources they expended to develop a product. Although this crime is white-collar in nature, it is clearly very dangerous to America’s economic infrastructure. If American dollars are spent on research and development of a product, and then that product or research is taken without any compensation to American companies, the value of American companies and American products is significantly reduced in the global marketplace."

The investigation is ongoing.