Two Convicted In Counterfeit Cisco Gear Racket

The scam involved relabeling and selling Chinese networking equipment as bona fide Cisco equipment, prosecutors say.

Mathew Schwartz

May 30, 2011

3 Min Read
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A federal jury last week convicted two people for running a racket that sold counterfeit Cisco gear.

Both Chun-Yu Zhao, of Centreville, Va., and Donald H. Cone, of Frederick, Md., had been charged with operating, together with family members in China, "a large-scale counterfeit computer networking equipment business under the name of Han Tong Technology (Hong Kong) Limited," as well as a Virginia-based company called JDC Networking Inc. that relabeled and sold the equipment.

"Zhao operated the U.S. headquarters of a Chinese company that was in the business of stealing intellectual property and defrauding customers," U.S. Attorney Neil H. MacBride said in a statement.

The website for JDC is still active, and advertises new and used products from Cisco, Juniper Networks, and Extreme Networks. According to the website, the company was established in 2001 and sells Cisco "switches, routers, hubs, servers, cables, and accessories."

But according to prosecutors, "JDC Networking Inc. altered Cisco products by using pirated software, and created labels and packaging in order to mislead consumers into believing the products it sold were genuine Cisco products.

"To evade detection, Zhao used various names and addresses in importation documents, and hid millions of dollars of counterfeit proceeds through a web of bank accounts and real estate held in the names of her family members in China, prosecutors said.

The jury convicted Zhao and Cone on conspiracy charges, which carry a maximum sentence of five years and a $250,000 fine. But Zhao was also convicted of "importation fraud, trafficking in counterfeit goods and labels, false statements to law enforcement, false statements in naturalization, and money laundering," prosecutors said. Those charges carry a maximum sentence of 10 to 20 years each, as well as fines ranging from $250,000 to $2 million per charge.

The jury also returned a verdict requiring Zhao to forfeit numerous assets, "including two Porsches, one Mercedes, seven bank accounts containing more than $1.6 million, and four homes and three condominiums with a total value of more than $2.6 million," said prosecutors.

Zhao's criminal enterprise began to unravel after the U.S. Customs and Border Protection agency intercepted counterfeit products that had been sent from China to an "addresses associated with Zhao and JDC Networking," said prosecutors. From there, the case was investigated by Immigration and Customs Enforcement in the Department of Homeland Security (DHS), as well as the inspectors general from the General Services Administration and the Department of the Interior.

The case is part of a larger Department of Justice effort, known as the Task Force on Intellectual Property. Established in February 2010 by Attorney General Eric Holder, the task force's mission is to "combat intellectual property crimes" at home and abroad, through both law enforcement investigations and enforcement, as well as attempting to influence related laws in other countries. The task force includes representatives from numerous parts of the Department of Justice, including the FBI.

Cisco has also been pursuing companies that sell fake versions of its products, for example as part of Operation Network Raider, an ongoing domestic and international effort, run by the Department of Justice and DHS, that targets counterfeit networking hardware made in China.

According to Dave Walters, director of global business operations at Cisco's worldwide brand protection division, by last year, the operation has resulted in "30 felony convictions and more than 700 seizures of counterfeit Cisco products worth an estimated retail value of more than $143 million."

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