Prosecutions highlight bid to clean up defense supply chain

Crooks are selling counterfeit, unapproved parts for use in U.S. submarines.

Michael Melia, Associated Press
12 October 2015

HARTFORD, Conn. – When Peter Picone sold counterfeit electronic parts from China and Hong Kong for use in U.S. Navy submarines, the U.S. Justice Department says, he knew their failure could have "catastrophic" consequences.
He was sentenced last week to more than three years in prison in one of the first convictions under a new law that aims to help curb the growing problem of counterfeit parts entering the supply stream for U.S. military contractors.
It's a problem that occupies federal investigators particularly in states like Connecticut with many defense contractors. In addition to the case involving integrated circuits for the submarine built at Groton-based Electric Boat, a man is awaiting sentencing for supplying unapproved computer chips for military helicopters built by Stratford-based Sikorsky Aircraft Corp.
"With the amount of defense contractors in Connecticut, and the volume of integrated circuits and things like that that go into these different DoD components and systems, it's certainly an important thing for us," said David Mello, agent in charge of the Homeland Security Investigations office in New Haven. "We do have a lot of leads and we look into them regularly."
The issue gained urgency with a 2011 investigation by the Senate Armed Services Committee that found 1,800 cases of suspected counterfeit parts in the defense supply chain over a two-year period, tracing many back to China.
A number of measures aimed at cleaning up the defense supply chain were adopted that year in a law that also created stiffer penalties for people caught in cases involving counterfeit military parts. Among other efforts since then, U.S. Justice Department officials say, there has been an increased focus on seeking out people responsible for shipping the imitation parts.
The only other person convicted so far under the new law is Hao Yang, of Bloomsburg, Pennsylvania, who was sentenced last year in federal court in Maryland to one year and nine months in prison for importing counterfeit goods, including electronics from China, and selling them as legitimate merchandise.
Picone, 42, of Methuen, Massachusetts, pleaded guilty in June 2014 to conspiracy to traffic in counterfeit military goods. According to prosecutors, he bought millions of dollars' worth of counterfeit integrated circuits from suppliers in China and Hong Kong and resold them to customers abroad and in the U.S., including defense contractors he knew to be involved in construction of nuclear-powered submarines. He was sentenced last week in federal court in Hartford to three years and one month in prison.
"Picone risked undermining our national security so that he could turn a profit," Assistant Attorney General Leslie Caldwell said. "He sold counterfeit integrated circuits knowing that the parts were intended for use in nuclear submarines by the U.S. Navy, and that malfunction or failure of the parts could have catastrophic consequences."
In the case involving parts for Sikorsky helicopters, defendant Jeffrey Krantz, of New York City, was not convicted under the new statute. He pleaded guilty in July to supplying customers with falsely marked microprocessor chips. The parts were examined and found not to be the cause of any mechanical problems.
Government officials say other cases are under investigation.