Xiaodong Sheldon Meng Economic Espionage Case

Economic / Industrial / Corporate Espionage Case

Name	MENG, Xiaodong Sheldon
Employer	Quantum3D Inc. "Quantum3D is a leading developer and manufacturer of real-time visual simulation and computing systems. Everything we offer is Commercial-off-the-Shelf (COTS) and open architecture, enabling us to deliver affordable reality to our military and civilian customers."
Dates of Employment	1 April 2003 to 15 January 2004 19 June 2000 to 7 March 2003 (resigned)
Employee Type	Independent Consultant (2003-2004) Staff (2000-2003)
Job Title/Duties	Systems Engineer VST, Computer systems Analyst, 3D Graphics Application Senior Engineer Consultant for Quantum3D in Asia; lived in PRC
Military Rank
Clearance Level

Spying For	PRC, Royal Thai Air Force, Royal Malaysian Air Force
Codename
Spying Dates
Co-conspirators
Methodology	Gave sales pitches to Asian military officials for software stolen from his former employer, San Jose-based Quantum3D Inc. Meng failed to deliver and return to Quantum3D, as required and as he had previously agreed, property and material belonging to Quantum3D upon his termination. Took, without authorization, from the United States, numerous Quantum3D products to Asia, including defense articles on the U.S. Munitions List from the United States, including viXsen source code and nVSensor source code. Traveled to Asia, and took with him documents, products, source code, and materials containing or relating to trade secrets and products belonging to Quantum3D. Used Quantum3D products, without authorization, in proposals with foreign governments and customers, including but not limited to the Royal Thai Air Force, the Royal Malaysian Air Force, and the PRC. Attempted to recruit others, including engineers from the Thailand, the PRC, and Malyasia to participate in and work proposals and demonstration projects involving foreign governments and companies. MENG possessed a compiler program which could be used to convert source code into an executable application. He attempted to compile, or caused to be compiled, source code belonging to Quantum3D. MENG established and worked with other companies for the purpose of selling products in the visual simulation market, in competition with Quantum3D. The companies included 4-D Space, Orad, EastCad, Heitech Padhu, and Thai Equipment Research Co. Ltd. Copied a Q3D software program involving 3D military training software program to his laptop. Offered to sell and provide technology and software source code as part of the proposals to foreign governments and customers in the visual simulation market. Used various e-mail accounts to communicate with coconspirators and others concerning the use of Quantum3D products in proposals and demonstration projects involving foreign governments and companies. Met with members of the Chinese Air Force about the DVG technology. Installed a DVG demonstration unit on a PRC Navy site.
Possible Motivations, Problems	Money
Finances
Identified/ Investigation	Three-year joint investigation by the U.S. Attorney’s Office Computer Hacking and Intellectual Property (CHIP) Unit, the Federal Bureau of Investigation (FBI), the Department of Homeland Security, Immigration and Customs Enforcement (ICE) - Office of Investigations, as well as Customs & Border Protection (CBP)
Arrest Date/Location	14 December 2006
Charges	Stole a trade secret from Quantum 3D known as "Mantis," a product used to simulate real-world motion for military training purposes. This was considered Quantum's "crown jewel" of their company. Charges: Three conspiracy counts Three counts of economic espionage and attempted economic espionage Two counts of violations of the Arms Export Control Act Twelve counts of theft of trade secrets and attempted theft of trade secrets Fifteen counts of foreign and interstate transportation of stolen property Three counts of making false statements to a government agency. Involved the unauthorized use of Quantum3D products and materials with entities and government agencies in the PRC, including Beijing Lantian Aviation Simulation Technology Company (BASC) (also referred to as Beijing Aviation Science and Technology Co., Ltd., and Blue Sky), a subsidiary of China Aviation Industry Corporation I (AVIC I), the Navy Research Center of the PRC, and the Shenzhen Land Management Bureau. Also involved the unauthorized use of Quantum3D products and materials with entities and government agencies in Thailand and Malaysia, including the Royal Thai Air Force and the Royal Malaysian Air Force
Court	US District Court, Northern District of California
Lawyers	Defense: Manual Araujo, an assistant federal public defender
Status	December 2006: Indicted on 36 felony counts alleging he attempted to sell the purloined programs to the Royal Thai Air Force, the Royal Malaysian Air Force and the Navy Research Center in China. 1 August 2007: Pled guilty to two felony counts: economic espionage and exporting controlled military technologies 18 June 2008: Sentenced under the Economic Espionage Act to 24 months in prison and pay $10,000 fine 18 August 2008: Ordered to surrender for prison term

Date/Place of Birth	1964, People's Republic of China
Citizenship	Canada
Residences	Cupertino, CA Resided in Beijing, People's Republic of China (PRC)
Education	Two degrees from McGill University
Family
Other Employment
Additional Bio

Documents	Former Chinese National Charged with Stealing Military Application Trade Secrets from Silicon Valley Firm to Benefit Governments of Thailand, Malaysia, and China......(DOJ Press Release, 14 Dec 2006) USA v. Xiaodong Sheldon Meng Superseding Indictment (14 December 2006) Former Chinese national convicted for committing economic espionage to benefit China Navy Research Center in Beijing and for violating the Arms Export Control Act.....(DOJ Press Release, 2 August 2007) Chinese National Sentenced for Committing Economic Espionage with the Intent to Benefit China Navy Research Center....(DOJ press release, 18 June 2008)
Quotes	"This conviction, the first in the nation for illegal exports of military-related source code, demonstrates the importance of safeguarding our nation’s military secrets and should serve notice to others who would compromise our national security for profit. This case is the latest evidence of the Department’s enhanced investigative and prosecutorial efforts to keep America’s critical technology from falling into the wrong hands."--Assistant Attorney General for National Security Kenneth L. Wainstein “Today’s case demonstrates the importance of safeguarding sensitive U.S. military technology as well as trade secrets. It should also serve as a warning to others who would compromise our national security for profit.”--Patrick Rowan, Acting Assistant Attorney General for National Security “In this case, a Silicon Valley trade secret was used in a demonstration project in Beijing with the intent to benefit the PRC Naval Research Center. Source code for military visual simulation programs to train military fighter pilots and restricted defense articles were also willfully exported outside the United States. We will continue to enforce the criminal laws against those who violate export restrictions and misappropriate our trade secrets. Many of the systems we protect are designed to safeguard our men and women in harm’s way and compromising them significantly adds to the perils that they face in defending us. It is imperative that we vigilantly protect the intellectual property developed in the Silicon Valley and elsewhere in the country so as to maintain as our nation’s military defense advantages, and to deter acts of aggression against vital American interests.”--Joseph P. Russoniello, U.S. Attorney for the Northern District of California “ICE is committed to shutting down those who are willing to put America’s national security on sale for a profit. The export of U.S. military products and sensitive technology is controlled for good reason – in the wrong hands, these items could be used to harm America or its allies."--Julie L. Myers, Department of Homeland Security Assistant Secretary for ICE
Case Links	The Economic Espionage Act of 1996: An Overview Major US Export Enforcement Actions, October 2006-October 2007
BOOKS

News:

Economic Espionage, Military Source Code, Sentencing

Xiaodong Sheldon Meng, 44, a software engineer born in China and currently a resident of Cupertino, Calif., was sentenced today to a term of 24 months by the Honorable Jeremy Fogel, U.S. District Court Judge in San Jose and was also ordered to serve a three-year term of supervised release following his prison term; pay a fine of $10,000, and forfeit computer equipment seized in the case…On August 1, 2007, Meng pleaded guilty to two national security violations: one count of violating the Economic Espionage Act and one count of violating the Arms Export Control Act and the International Traffic in Arms Regulations. Meng’s conviction was the first involving military source code under the Arms Export Control Act and marked the second case in which there was a conviction under the Economic Espionage Act for misappropriating a trade secret with the intent to benefit a foreign government. According to court records, Meng committed economic espionage by misappropriating a trade secret, known as "Mantis 1.5.5," from his former employer, Quantum3D Inc., with the intent to benefit a foreign government, specifically the People’s Republic of China (PRC) Navy Research Center in Beijing… Defendant Meng was ordered to surrender for this prison term on August 18, 2008. He has been out of custody after a $500,000 bond, secured by cash and real property, was posted at the beginning of the case.…….(Technology News Daily, 19 Jun 08)

Canadian Citizen Gets Two Years in Night-Vision Espionage Case

This summer, we could see several people of Chinese descent prosecuted in the U.S. for economic espionage. Yesterday, district judge Jeremy Fogel became the first judge to sentence a defendant convicted under economic espionage laws since Congress passed them in the 90’s. Xiaodong Sheldon Meng received 24-months, the maximum under a plea deal in which he reportedly admitted to possessing night vision software for pilots, and using the software to benefit the Chinese Navy. According to The Recorder and the AP, here’s what happened: Meng, 44, a Canadian citizen, left software company Quantum3D in 2004 to work for Orad, an Israeli competitor. However, Meng allegedly kept some of Quantum3D’s trade secrets on his computer, including a software program called Mantis which he then used in a demonstration to Chinese naval officials. Meng reportedly altered Quantum3D’s brand to make it seem like the software secrets regarding the space shuttle, a military transport plane and a rocket belonged to Orad…According to the AP, two other Silicon Valley engineers — a U.S. citizen from China, and a permanent resident of the U.S. from China — have pleaded guilty to economic espionage for stealing microchip blueprints from their employers and attempting to smuggle them to China. Their sentencing is set June 23. In a separate case, two other Silicon Valley engineers of Chinese descent were indicted in September on charges they stole chip designs and tried to launch a microprocessor startup with a Chinese VC firm. Their trial hasn’t been set…….(Wall Street Journal, 19 Jun 08)

Engineer jailed for theft of U.S. secrets

…Mr. Meng, who held Canadian citizenship and had two degrees from McGill University, had just arrived in the United States from China to attend an event that only a computer geek could love: the Interservice Industry Training, Simulation and Education Conference. Unknown to Mr. Meng, he was also delivering himself into the hands of the FBI, who had spent months on a high-tech investigation that led from California to China. And now the FBI had the smoking gun: On Mr. Meng's laptop and hard drive were thousands of files that officers said proved he had stolen advanced military technology from his former U.S. employer and taken them to China, the world's newest superpower…..(Globe & Mail, 19 Jun 08)

Judge Takes Hard Line in First Economic Espionage Sentence

…Xiaodong Sheldon Meng, 44, was hit with a 24-month sentence, the maximum under a plea deal in which he admitted possessing night vision software for pilots, material that belonged to Quantum3D, a San Jose, Calif., company. He then used that software to benefit the Chinese government. Meng also admitted breaking American arms export-control laws. With the hearing Wednesday in San Jose, Fogel became the first judge in the country to sentence a defendant convicted under economic espionage statutes since Congress passed them in the 1990s…..(Law, 19 Jun 08)

Salesman gets 2 years for industrial spying

Xiaodong Sheldon Meng, 44, now a Canadian citizen, is the first person to be sentenced under a 1996 economic espionage law designed to prevent trade secrets from being handed over to foreign powers. The prison term was the maximum that prosecutors said they would seek after Meng pleaded guilty in August in U.S. District Court in San Jose to one count of violating the Economic Espionage Act and one count of violating the Arms Export Control Act. Thirty-four other counts he had faced were dropped……(SF Chronicle, 19 Jun 08)

Engineer is first sentenced for economic espionage

… Meng left the courthouse without commenting to reporters. Released on a $500,000 bond, he has until August 18 to begin serving his sentence. Prosecutors described him as a low flight risk. Two other Silicon Valley engineers — Fei Ye, a U.S. citizen from China, and Ming Zhong, a permanent resident of the U.S. from China — have pleaded guilty of economic espionage for stealing microchip blueprints from their employers and attempting to smuggle them to China. Their sentencing is set June 23. In a separate case, Silicon Valley engineers Lan Lee and Yuefei Ge were indicted in September on charge they stole chip designs and tried to launch a microprocessor startup with a Chinese venture capital firm. Their trial hasn‘t been set. In Southern California, Chinese-American engineer Dongfan "Greg" Chung, who worked at Boeing Co. and space shuttle-builder Rockwell International, has pleaded not guilty of charges he stole secrets regarding the space shuttle, a military transport plane and a rocket on behalf of China……(AP, 18 Jun 08)

Silicon Valley engineer sentenced for economic espionage

A federal judge today sentenced a former Silicon Valley software engineer to two years in federal prison for stealing military technology and trying to sell it to the Chinese government, the first defendant to be convicted under the anti-espionage provisions of a 12-year-old federal law. Xiadong Sheldon Meng, 44, was sentenced by U.S. District Judge Jeremy Fogel, who agreed with federal prosecutors' recommendation of a two-year prison term. Meng, a Cupertino resident and Chinese national, pleaded guilty last year to violating the Economic Espionage Act of 1996 and federal export laws, admitting he stole technology from his former employer, Quantum 3D......(San Jose Mercury News, 18 Jun 08)

Chinese engineer sentenced for economic espionage

An engineer who admitted he tried to sell fighter-pilot training software to the Chinese Navy has been sentenced to 24 months in federal prison....(AP, 18 June 08)

Economic espionage pleas seen as crucial

…Prosecutors have been criticized for not bringing more cases under the Economic Espionage Act of 1996 that allege the intent to benefit a foreign government. The law was originally written to combat the threat of trade secrets by foreign agents, with the FBI identifying at least 23 countries suspected of aggressively seeking to steal intellectual property from U.S. businesses…..(AP, 16 Dec 06)

Silicon Valley Employee Charged With Selling Military Secrets

…According to the indictment, (Xiaodong Sheldon) Meng, a Chinese national with Canadian Citizenship, gave valuable trade secrets belonging to Quantum 3D to members of the Malaysian and Thai air forces and potentially most damaging, to China…The products Meng allegedly dealt with could be found on banned U.S. export munitions lists. Prosecutors say Meng made numerous visits to China, Thailand and Malaysia and provided briefings and demonstrations in China to individuals connected with the Chinese army and navy and various industry groups in the country…(ABC, 15 Dec 06)

Engineer Indicted for Alleged Espionage

A Chinese engineer was charged Thursday with stealing trade secrets from a Silicon Valley company that made military training software and attempting to sell them to Asian governments. Xiaodong Sheldon Meng, 42, a Chinese national with Canadian citizenship, was indicted on 36 felony counts, including the rare charge of economic espionage to benefit a foreign government and various violations of military technology export laws….(AP, 15 Dec 06)

Economic espionage said to hit S.J. firm

….The Meng case is the third foreign economic-espionage indictment in the United States since the Economic Espionage Act was passed in 1996. Meng is free on a $500,000 bond….(Mercury News, 15 Dec 06)

Feds accuse man of trying to sell software to Asian military buyers

…The 36-count criminal against Meng alleges that he stole night-vision training software and other simulation tools from Quantum3D, a San Jose defense contractor for whom he worked between 2000 and 2003. The indictment alleges violations of several federal statutes, including the Economic Espionage Act and the Arms Export Control Act -- charges that could lead to hefty fines and lengthy jail terms….(SF Gate, 15 Dec 06)