Federal prosecutors have charged Chinese firm, Sinovel with stealing U.S. intellectual property. Sinovel has denied wrongdoing. NBC News National Investigative Correspondent Michael Isikoff reports.
A Chinese energy firm offered big money and access to women to entice an engineer at a U.S. company to launch a cyber raid on his employer, stealing sensitive computer codes and “thereby cheating (the firm) … out of more than $800 million,” according to newly unsealed court documents and internal messages and emails obtained by NBC News.
Federal prosecutors call the alleged cyber theft from American Superconductor (AMSC) in Devens, Mass., one of the most brazen cases yet of Chinese economic espionage in the United States. The techniques the Chinese used to rob the company of three quarters of its revenue, half its workforce, and more than $1 billion in market value were straight out of a “spy novel,” the firm's CEO said in an interview with NBC News.
"They were out to kill my company," said Daniel McGahn. “We thought we were playing by the Chinese rules. We didn't anticipate outright theft as part of their business model."
American Superconductor had developed advanced computer software that regulates the flow of electricity from wind turbines. Its biggest customer was Sinovel, the world's second-largest wind energy supplier (behind Denmark's Vestas).
But in March 2011, Sinovel abruptly cut American Superconductor off — refusing to pay for contracted shipments -- after the Chinese firm obtained source codes for the software from one of American Superconductor’s own employees, according to criminal charges filed against Sinovel by federal prosecutors.
Sinovel, along with two of its executives and the former American Superconductor engineer, were recently indicted by a federal grand jury on charges of trade theft and wire fraud.
House Intelligence Committee Chair Mike Rogers, R.-Mich., says China's military and intelligence services steal U.S. trade secrets and give them to Chinese companies. The Chinese government has denied cyber espionage and says it is often the target of cyber attacks.
The company, which has denied wrongdoing in the past, declined to comment when contacted by NBC News through its lawyer.
Dejan Karabasevic, the former employee who allegedly stole the software while serving as American Superconductor’s chief engineer in its Austria office, has pleaded guilty to stealing the trade secrets in an Austrian court and was sentenced in 2011 to a year in jail. His lawyer declined comment.
The Skype messages and emails obtained by NBC News show how Sinovel allegedly pulled off the alleged heist.
The Chinese firm enticed Karabesic to download American Superconductor’s encrypted source codes onto a thumb drive and then send them by email to Sinovel executives in China, according to prosecutors. As inducements, the emails and Skype messages show, it offered Karabasevic a $1.7 million contract, an apartment in Beijing and access to women -- as well as payments wired into the bank account of a girlfriend who was a Vietnamese flight attendant.
"All girls need money. I need girls. Sinovel needs me," read one of Karabasevic’s messages to a Sinovel executive in China.
In others, the Sinovel executive praised and encouraged Karabasevic.
"Best man. like Superman...haha," one executive said via a Skype instant message. "Yes, superman," replied Karabasevic .
Former U.S. Ambassador to China Jon Huntsman says the government needs stronger tools to stop theft and says the alleged Sinovel theft of trade secrets will be a linchpin case. China has denied cyber espionage. Sinovel, which has also denied wrongdoing, declined comment.
"If you succeed, Sinovel can separate from AMSC (American Superconductor)," Karabasevic said.
"And I need your strong help. Haha," a Sinovel executive replied.
The FBI says it later discovered stolen software operating in a Sinovel wind turbine just 40 miles from AMSC's headquarters. The turbine had been sold to the Massachusetts Water Resources Authority, which paid with $4.7 million in federal stimulus funds.
The cyber theft -- and the loss of Sinovel’s business -- devastated American Superconductor’s business, causing its stock price to plummet and forcing the company to lay off half of its workforce of 900 employees, McGhan said.
In filing the charges against Sinovel, John W. Vandreuil, the U.S. attorney in Madison, Wisc., called Sinovel’s attack on American Superconductor "nothing short of attempted corporate homicide.”
U.S. officials say the Sinovel case is a prime example of Chinese looting of U.S. technology that is draining up to $300 billion a year from the American economy and costing millions of jobs, according to a report by the Commission on the Theft of American Intellectual Property published in May. The report concluded "that national industrial policy goals in China encourage IP theft, and an extraordinary number of Chinese in business and government entities are engaged in this practice."
"It ruins market value. It destroys jobs. And one thing we know from the Sinovel case is that American companies by and large have had enough," said former U.S. Ambassador to China Jon Huntsman, who co-chaired the commission.
"We've got to have some tools that actually provide the teeth to go beyond just the jawboning," Huntsman told NBC News. "We've got to have real leverage on the table and that would come down to denying China access to the U.S. market, which is ultimately what they want for their companies and for their dollars that they want to invest."
Rep. Mike Rogers, R-Mich., who chairs the House Intelligence Committee, added, "We are no longer going to play nice about what we know is as basic as highway robbery. … There ought to be a consequence for it. We can't continue to let them believe that they can steal this property and then go ahead and compete against U.S. companies at a price point that our companies can't compete with."
American Superconductor -- now one-third its former size -- is determined to rebuild and ultimately be repaid for its losses. It is now seeking compensation in Chinese courts. "At some point, you have to draw the line and say, 'Enough is enough,'” said McGahn, the CEO. “Fortunately, we've been able to survive. I don't want to see other companies go through what we've gone through."
NBC News researcher Alex Hosenball contributed to this story.
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