Sounds Familiar…

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Sounds Familiar… 

Part of a story from the ACFE Newsletter in December … “China is expected to overtake the U.S. in GDP sometime around mid-century, according to the latest economic research. And for that momentous accomplishment Beijing will have not just its own massive manufacturing and export machines to thank. It will owe a small debt of gratitude to Mike Yu.

Yu, a Chinese national, worked for Ford Motor Company in the United States for 10 years as a product engineer. During that period, he stole 4,000 sensitive documents pertaining to system design specifications on which, according to the FBI, Ford had spent millions of dollars in developing.

After Yu left Ford in 2006, he returned to China where he worked brief stints at several small automotive design companies. In 2008 he landed a job with Beijing Automotive Company (BAC), one of the country’s biggest carmakers. The job offer by BAC was, according to the FBI, directly related to Yu’s offering of the stolen Ford trade secrets. (There is no known evidence that Yu received payment for the documents).

The kicker: Yu was arrested in 2009 upon returning to the U.S. Approximately a year later, he signed a plea agreement in federal court. Prior to doing so, according to court documents, he faced up to 10 years in jail and a $250,000 fine. However, according to the plea agreement, Yu will get no more than six and a half years in jail and no fine. Does white collar crime pay, or what?” This story has strong parallels to a case we were hired to investigate. A Chinese student ripped off trade secrets from our client, as well his customer list while working at our clients facility as an intern. The intern left the US when he finished his degree, and returned to China.

Our client first became aware that something was wrong when his sales dove by 80% in one month. From our investigation, taking near 45 days, we learned … Upon returning to China he set up a factory to make the very same items made by our client, utilizing all of the stolen IP from our client. To add salt to the wound, he called all of our client’s customers and offered them 90 day terms on payment. In a narrow margin industry, this was a significant competitive advantage. Our only guess why our client did not suffer 100% loss of clients is that the intern must have had too many orders to follow up contact.

We were able to get the infringing goods barred from import, but the cost was staggering. Our client was forced to cut his work force by 70%, and it took nine months to return to the “pre-infringement” level of sales. We estimated at least a full three years earnings would be a required just to cover the losses during those nine months. You never break even after a loss like this. If you don’t get it yet – your IP is ripe for theft, sale, and exploitation. There is no shortage of takers or buyers.

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