Short-Sale AMSC: DOJ’s Stealth Probe of AMSC

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Incidentally, http://blogs.orrick.com/trade-secrets-watch/2013/07/10/money-money-money-top-10-trade-secret-verdicts/,

Out of top 10 Trade Secret IP theft verdicts, NOT 1 involved pure software based trade secret.  And ONLY 2 had verdicts exceeding $800 million.

 

More bad news for AMSC just keep coming:  AUGUST 2013

(1) AMSC, this month of August 2013, “dismissed” its public auditing firm of PriceWaterhouseCooper (PwC), over unspecified “disagreements”.

Hmm…. I think PwC smells an investigation coming.

(2) AMSC’s VP of Communication Jason Fredette left AMSC, in 2013, to become “independent communication consultant”. His Linkedin profile indicates “Independent Communications Consultant  Client: AMSC (American Superconductor Corp.)”

 

 

 

 

 

Yes, this was the same Jason Fredette quoted by numerous articles about the Sinovel dispute.

Hmm…. Why would a VP of Communication leave to become an independent communication consultant for the same company??

Can someone say, “laid off”, kick off to the curb, on furlough, resume place holder?

(3) AMSC’s General Counsel, John W. Powell, left AMSC to join as an “of counsel” for a small Boston IP law firm of Occhiuti Rohlicek & Tsao LLP. (The move is only indicated on his linkedin, as AMSC still list him as general counsel, and the law firm has not added him on their website yet).

 

 

 

 

 

When I say “small law firm”, I mean tiny tiny. The firm has less than 10 lawyers.

Mr. Powell, previously worked for noted companies like Motorola and Raytheon, and even testified before the US Sentencing Commission regarding the Sinovel case.

Pretty giant fall from in-house Fortune 500 to “of counsel” of a D-list law firm.

Perhaps Mr. Powell is laid off? Or he knows legal troubles coming when he smells them.

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If there is 1 stock I would dump, if I had some of it, it would be AMSC’s stock.  I have previously tracked many details of AMSC’s lawsuits with Sinovel in China.  https://hiddenharmonies.org/2012/12/a-case-of-corporate-and-national-defamation-amsc-v-sinovel-hot-air-in-legal-and-media-exercises/

But the mess got crazier recently, because US Department of Justice decided to indict Sinovel, 2 of Sinovel’s employees in China, and 1 Ex-AMSC employee in Serbia.

AMSC cheered the indictment publicly as its own victory.  Its stock went up a tick.

But really, the victory is hollow on so many fronts.  Indeed, I now suspect that DOJ may have used the indictment of Sinovel as a cover to open a Stealth criminal probe into AMSC’s business.

1st, AMSC faced a rather damaging class action lawsuit by its investors over its delayed disclosure of Sinovel’s dispute with AMSC.  This lawsuit was dismissed.  But you can bet some of the investors are still not happy, and wouldn’t mind encouraging the Feds into investigating AMSC, while investigating Sinovel.

2nd, DOJ’s own public statement eluded to the fact that they are still “investigating”!  http://www.justice.gov/opa/pr/2013/June/13-crm-730.html  Surely DOJ must know that they can’t get much information from Sinovel or the other accused in the case.  They are all in foreign countries.  (Sinovel does have a US branch, but it’s a sales office, it’s not expected to archive corporate emails from China).  So what is DOJ “investigating”?  Obviously AMSC.

AND LET’s get a plain glimpse of the “charges”:  DOJ and AMSC accuses Sinovel of stealing $800 million of what?  IP for “source code” of software used in windturbine power converters???  

SERIOUSLY??!  $800 million for IP of a software??  

Well, let’s put it this way.  AMSC is no Microsoft or Apple.  Sinovel doesn’t even make that many windturbines in the world to justify $800 million figure for a software in 1 small part of the windturbine.  You know how many windturbines Sinovel sold to a Massechusetts windfarm??  a grand total of FOUR!  And 23 to a Brazilian windfarm.  

AMSC might need to be investigated for highway robbery, (or Ransomware indeed).

I call it a “stealth criminal probe,” because it’s disguised as an investigation for AMSC, while it’s really trying to get AMSC to turn over self-incriminating evidence.

DOJ also strikes the banner of this case as crusading against IP theft, and basically requiring AMSC to “cooperate” on this Holy Quest (even though they can’t reach any of the foreign accused).  And if AMSC refuses to turn over documents, DOJ would have legitimate excuse to go after AMSC.  Obviously, DOJ knew that it could not easily target AMSC directly without some reasonable cause, so an indictment against Sinovel gave DOJ a perfect excuse to force AMSC to “cooperate”.

On the other side, on the slim chance that Sinovel does decide to defend its reputation and fight out in US criminal court, Sinovel may be inclined to “cooperate” with DOJ in a plead bargaining to spill some dirt on AMSC.  Afterall, Sinovel has only a US sales office that DOJ could go after.  It has very little to lose.

3rd, what might DOJ find?  I had already detailed some of the AMSC’s possible problematic conducts.

(1) Most glaring, Export Control violation.

AMSC did not mention the PLC software in any of its contracts with Sinovel.  AMSC may have tried to bypass Export Control review by pre-installing the software in PLC, and sending the PLC as component to China via Austria.  PLC (Programmable logic controllers) themselves are old technologies which China already has, and thus not Export controlled.  But any new and supposedly IP worthy software would need to be reviewed through Export Control, and quite possibly denied for exporting to China.

Remember all those “Chinese spies”?  Like Bo Jiang, who supposedly took “Export Controlled” software to China?  http://www.theverge.com/2013/3/21/4130498/chinese-research-scientist-accused-of-spying-on-nasa

Only last year, DOJ got United Technologies to plead guilty to violating Export Control in sending control software to China that ended up in Chinese military helicopters.  http://www.thejakartapost.com/news/2012/06/29/utc-exported-software-used-chinese-helicopter.html

In 2010, BAE systems (defense contractor) also plead guilty to violating export control and foreign corrupt practices act.  http://www.justice.gov/opa/pr/2010/March/10-crm-209.html

Well, AMSC may have done the same, by installing software on PLC’s and sold them to China, for many years!

(2) Transfer pricing and tax fraud.

By attributing nothing to the PLC software in the contracts, AMSC effective avoided software licensing tariffs in China and other tax liabilities in US.

(3) others, like conspiracy to defraud investors and making misrepresentations.  Relating to the class action lawsuit.

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So, for once, I’m doing a “Muddy Water” type post, but I think the facts rather support my speculation here, that DOJ may actually be targeting AMSC.

Even if they don’t openly admit it, you know they are considering it.

Come on, Why else put in that much manpower to investigate a case that AMSC itself didn’t bother to press in US civil courts.  AMSC afterall, for a while, was helping a Chinese company get leg up on advanced technologies.

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BTW, relevant recent US cases on “economic espionage”:

http://tsi.brooklaw.edu/cases/united-states-v-aleynikov

In 2011, Sergey Aleynikov was sentenced to more than eight years in prison for the theft of trade secrets under the Economic Espionage Act and transportation of stolen property in interstate commerce under the National Stolen Property Act (NSPA). This case marked the first instance of federal prosecutors using the Economic Espionage Act (EEA) to police the misuse of source code related to high frequency trading. The trade secrets at issue are segments of computer source code from Goldman Sachs & Co. (Goldman) that are used in its high frequency trading platform.

In February 2012, the court reversed Aleynikov’s conviction of trade secrets theft in a one-page order. In an opinion published April 11, 2012, the Second Circuit held that Sergey Aleynikov was wrongly charged with theft of property because the code did not qualify as a physical object under a federal theft statute. The court held that “because Aleynikov did not ‘assume physical control’ over anything when he took the source code, and because he did not thereby ‘deprive [Goldman] of its use,’ Aleynikov did not violate the [National Stolen Property Act].” It also ruled that Aleynikov was wrongly charged with espionage, since the code was not a product designed for interstate or foreign commerce. The decision called into question the government’s ability to prosecute theft of internal trading systems or other internal financial instruments under the Economic Espionage Act.

Bottomline:  US 2nd Circuit Court ruled that misuse of “source code” for internal “software” does not fall under the Economic Espionage Act 18 U.S.C. 1832, 1 of the laws used to indict Sinovel.

Did DOJ miss that ruling??