U.S. Attorney Tammy Dickinson of the Western District of
Missouri announced today that a Seattle man became the sixth defendant
convicted in federal court for his role in one of the largest software piracy
schemes ever prosecuted by the U.S. Department of Justice.
“An investigation that began in Kansas City, Mo., uncovered
one of the largest software piracy schemes ever prosecuted by the U.S.
Department of Justice, with tentacles reaching into cities across the United
States and overseas,” said U.S. Attorney Dickinson. “Investigators seized more than $20 million
in assets from conspirators who are estimated to have sold in excess of $100
million worth of illicit, unauthorized and counterfeit software products to
thousands of online customers. Software
piracy is a significant economic crime that victimizes not only software
developers and manufacturers, but unwitting consumers. Today’s announcement is part of an ongoing
investigation. We can’t provide
additional information about the investigation at this time, but we expect that
more offenders soon will be brought to justice.”
“Pirating software, particularly on this massive scale,
damages the American economy, hurts private businesses and harms the
unsuspecting buyer,” said acting Special Agent in Charge James Gibbons of U.S.
Immigration and Customs Enforcement’s Homeland Security Investigations
(ICE-HSI) Chicago. “These plea
agreements mark a historic day for our HSI special agents, and our law
enforcement partners, in the fight to stop the theft of intellectual property.”
Rex Yang Jr., 37, of Seattle, waived his right to a grand
jury and pleaded guilty before Chief U.S. District Judge Greg Kays of the
Western District of Missouri on Dec. 16, 2015, to a federal information that
charges him with participating in a criminal conspiracy from Jan. 1, 2009, to
Dec. 10, 2014.
Yang, who owned and operated Digisoft LLC and Premiere
Software Inc., is the sixth and final defendant to plead guilty in separate,
but related, cases in this stage of an ongoing criminal investigation that
originated with a Kansas City, Missouri, company. Many of these defendants and their related
entities had been sued civilly for willful trademark and copyright infringement
by Microsoft and other software developers.
The multimillion-dollar scheme, which involved
co-conspirators operating overseas in the People’s Republic of China, Singapore
and Germany and across the United States, illegally sold millions of dollars of
Microsoft Corporation and Adobe Systems Inc. software product key codes through
a charitable organization and several online businesses. Product key codes are used to obtain full
access to unlocked, licensed versions of various copyrighted software programs. The conspirators distributed more than 170,000
product activation key codes and many of these key codes were each used and
activated numerous times.
Investigators seized more than $20.6 million in assets,
including $10,188,777 seized from bank and investment accounts, 10 luxury
automobiles and 27 parcels of real estate with a total market valuation of
$9,739,399, through federal forfeitures.
Affidavits filed in those forfeiture complaints estimate that
conspirators reaped about $30 million in profits from customers who paid more
than $100 million for the software.
Search warrants have been executed at 13 separate
residential and business locations in five different states in the course of
this investigation.
Kansas City: USA v. Ross
Casey Lee Ross, 29, of Kansas City, pleaded guilty on June
11, 2015, to his role in the conspiracy.
The investigation began in 2013, when federal agents in Kansas City
learned that Ross, the owner of Software Slashers, had purchased and
redistributed tens of thousands of illegitimate and unauthorized Microsoft
product key codes and counterfeit product key cards from sources in China.
Ross admitted that he purchased approximately 30,159 product
key codes and counterfeit product key cards.
Ross purchased these product key codes at prices well below that of the
estimated retail price. In many cases,
they were distributed on counterfeit card stock intended to make it appear as
if they were genuine Microsoft products.
Ross distributed large quantities of these product key codes
and counterfeit Microsoft product key cards to co-conspirators in the United
States, who in turn sold the product key codes and counterfeit product key
cards through their respective websites, as well as on e-commerce sites such as
eBay or Amazon. Ross admitted that he
received $1,387,595 from Yang; $1,127,190 from Matthew Lockwood, 38, of Denver;
$875,630 from Reza Davachi, 41, of Damascus, Maryland; and payment for
approximately 2,569 unauthorized product key codes from Arunachalam Annamalai,
48, a citizen of India residing in Las Vegas.
Seattle: USA v. Yang
Yang admitted that he possessed approximately 10,205
Microsoft certificates of authenticity.
In addition to his purchase from Ross, Yang paid $402,929 to Davachi to
acquire various software and software components. Yang also admitted that he sold various
software items to Lockwood for $1,574,054.
Denver: US v. Lockwood
Lockwood pleaded guilty on June 11, 2015, to his role in the
conspiracy. In addition to his purchases
from Ross and Yang, Lockwood, doing business as Discount Mountain Inc., paid
Davachi $1,243,570 for counterfeit, illicit and/or unauthorized software and
software components.
Lockwood admitted that he obtained approximately 6,165
certificates of authenticity, 4,996 “Lenovo” product key cards and
approximately 11,000 unauthorized product key codes.
Baltimore: US v. Davachi
Davachi pleaded guilty on Oct. 20, 2015, to his role in the
conspiracy. Davachi admitted that, in
addition to his purchases from Ross, he paid $672,300 to a counterfeiter within
the People’s Republic of China as payment for unauthorized product key codes
and counterfeit product key cards.
Federal agents seized approximately 5,040 Microsoft
operating system certificates of authenticity – valued at $1.26 million – while
executing search warrants at Davachi’s residence and business. Davachi also admitted that he used Project
Contact Africa, a charitable organization, as a way of operating his for-profit
Rez Candles Inc. business, which sold a host of items online, including
illicit, unauthorized and counterfeit software.
Davachi was aware that the stated purpose of the charity was to “support
a medical clinic in Africa for needy families and children” and children
suffering from HIV.
Davachi’s role was managing and maintaining the on-line
presence of the Project Contact Africa eBay/PayPal charity since January
2004. Over this time, Davachi actively
used the Project Contact Africa charity’s eBay/PayPal account to sell
unauthorized, illicit and counterfeit software and software components through
eBay, and used the charity’s PayPal account to facilitate payments for these
software components.
Davachi managed and maintained the online presence for the
Project Contact Africa charity by a person identified in court documents as
Individual F, in exchange for a payment to Individual F of approximately $2,000
per month beginning in early 2012. By using
the charity’s account to sell his items through the eBay charity store, Davachi
saved thousands of dollars per month in various fees that he would have
otherwise had to pay eBay. During this
time, the Project Contact Africa eBay/PayPal account took in approximately $12
million in revenue, and eBay/PayPal sustained losses of approximately $908,231
due to the waived fees.
Customers of the Project Contact Africa eBay charity store
were under the impression that “100 percent” of the proceeds of sales were
intended to go to the charity when, in fact, Davachi and Individual F agreed
that only a portion of the proceeds would go to the charity; the remainder
would go to Davachi and Rez Candles Inc., which, in turn, would use these
proceeds to purchase new inventory.
Davachi and Individual F intended to repeat this cycle for their
benefit. Davachi also admitted that he
allowed numerous other individuals, including Ross, to use the Project Contact
Africa eBay/PayPal charity store to sell their own items at a significantly
reduced amount as compared to other for-profit sales methods on eBay, with the
understanding that Ross and others, would pay back to Davachi a portion of
their savings.
Las Vegas: USA v. Annamalai
Annamalai pleaded guilty on July 29, 2015, to his role in
the software piracy conspiracy.
Annamalai is the owner and operator of Vegascart LLC. Annamalai admitted that he purchased
approximately 2,569 Microsoft software product key codes from Ross between
March and December 2013. These software
key codes are calculated at a loss amount of $250 each, therefore, the relevant
loss amount in this matter is estimated at $642,250.
Seattle: USA v. Schwartz
Jake Schwartz, 28, of Seattle, owner of JHS Enterprises
Inc., pleaded guilty on Oct. 27, 2015, to misprision of a felony. Schwartz admitted that he knew about Yang’s
involvement in the conspiracy and helped to conceal it. After Digisoft was sued for willful copyright
and trademark infringement by Adobe Systems, Schwartz agreed to form Soft Deals
LLC, a new corporation, with Yang.
* * *
Assistant U.S. Attorney Patrick D. Daly of the Western
District of Missouri is prosecuting these cases and Assistant U.S. Attorney
Curt Bohling of the Western District of Missouri is responsible for the civil
proceedings. ICE-HSI investigated the
cases.
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