Fake semiconductors imported from Hong Kong sold for use in US nuclear subs

American contractor who supplied counterfeit semiconductors for use in nuclear submarines had been importing them from China for years

PUBLISHED : Wednesday, 04 June, 2014, 9:16pm
UPDATED : Wednesday, 04 June, 2014, 9:16pm

An American businessman has pleaded guilty to shipping potentially dangerous counterfeit semiconductors from Hong Kong to a US navy base for use in nuclear submarines.

Peter Picone took a plea deal on Tuesday in a US federal court in Hartford, Connecticut. He faces up to 46 months in prison when he is sentenced in August.

Picone admitted that the substandard parts could have put people's lives in danger.

"I made a big mistake," he told judge Donna Martinez. "The outcome if they got through ... would be horrible."

Picone, 41, of Methuen, Massachusetts, and his companies, Tytronix and Epic International Electronics, sold US$2.5 million worth of counterfeit semiconductors to numerous clients from February 2007 to December 2012, according to authorities.

Authorities said Picone imported thousands of semiconductors from companies in mainland China and Hong Kong that refurbished old ones and put counterfeit markings on them, to make it appear they were made new by reputable companies, including National Semiconductor and Motorola.

Most of the US companies Picone sold to had requested new chips that had not been made in China, authorities said.

US authorities say counterfeit semiconductor chips could contain malicious computer code or hidden "back doors" that would allow someone to disable systems, intercept communications or commit other network intrusions. They also say bogus chips can cause malfunctions and failures, as well as electrical shocks that can kill or injure people.

"Counterfeit electronic components pose a significant risk to our national security, the dependability of our weapons systems, and ultimately the safety of our war fighters," said Craig Rupert, special agent in charge of the Northeast Field Office of the Defence Criminal Investigative Service.

"The failure of a single electronic component could leave our military vulnerable."

In one order, Picone sent 100 counterfeit semiconductors to the submarine base in Groton, Connecticut, in February 2012, knowing they were for a contract for a new submarine.

The US navy tested the semiconductors before using them and discovered they were not new and had been manipulated to hide their origins.

Picone made about US$2,000 between that order and another for the base two months earlier, authorities said.

In another order in 2009, Picone sold 33 counterfeit semiconductors for US$68,000 to a defence contractor who was going to send them to the navy for use in the secondary propulsion system of an active-duty nuclear submarine.

The defence contractor also tested the parts and determined they were bogus.

Officials with the US Defence Department, navy and Homeland Security Department investigated Picone's case.

They found evidence he wired nearly US$1.8 million to companies in mainland China and Hong Kong. At Picone's home, they seized nearly 13,000 semiconductors bearing the counterfeit markings of at least 35 companies.