Federal officials in KC file charges in massive international software fraud case

Federal criminal charges filed in Kansas City allege a massive, globe-spanning conspiracy to buy and sell counterfeit computer software.

Tens of millions of dollars exchanged hands in the alleged criminal enterprise, which rivals the largest previous federal investigation into software piracy, authorities say.

The criminal charges against three men follow a lengthy investigation and a wave of civil filings to seize money and property from those involved.

The conspiracy extended from China, where counterfeiters allegedly supplied pirated software products and stolen codes and serial numbers to activate those products to numerous individuals and companies across the United States, according to court documents filed by the U.S. attorney’s office in Kansas City.

The unauthorized and illegally obtained products then were offered for sale at below-normal prices to consumers through websites such as eBay, Craigslist, Overstock.com and Amazon, according to the allegations.

On Thursday, Reza Davachi, 41, of Damascus, Md., appeared in federal court in Baltimore on charges filed in Kansas City.

He is accused of conspiring with a Kansas City, North, man and a Colorado man to commit wire fraud and trafficking in counterfeit goods. Several other individuals and corporations not named in the charges also were involved in the conspiracy, prosecutors allege.

According to court documents, Davachi, who operated a business called Rez Candles and a nonprofit organization called Project Contact Africa, grossed millions of dollars since 2009 by selling “counterfeit, illicit and/or unauthorized Microsoft software, software products and related components, including unauthorized product key codes and counterfeit product key cards.”

Last week, the two other men — Casey Lee Ross, 28, of Kansas City, North, and Matthew Lockwood, 37, of Denver — waived their right to a grand jury and pleaded guilty in U.S. District Court in Kansas City to participating in the scheme.

Within an hour of learning that Ross and Lockwood had pleaded guilty, Davachi bought a round-trip ticket to London, federal prosecutors said. He was arrested Wednesday night when he arrived at the airport for the flight.

The investigation began in April 2013 when officials with Homeland Security Investigations received a tip that Ross was selling unauthorized and counterfeit software.

According to documents filed in his case, Ross operated a business called Software Slashers from his Northland home.

In his plea agreement, he admitted that from January 2009 to December 2013 he obtained more than 30,000 key codes, serial numbers and key cards for Microsoft and Adobe products from suppliers in China.

He arranged to have the products shipped directly to other conspirators, or he shipped them. The unauthorized codes and serial numbers allowed access to licensed versions of copyright software programs.

Between December 2012 and July 2013, wire transfers and deposits totaling $3,390,415 were deposited into bank accounts controlled by Ross. Those deposits were made by other conspirators in Colorado, Maryland and Washington, authorities allege. Ross received other unspecified payments from someone else in Nevada.

Lockwood operated a Colorado business called Discount Mountain to sell software and software products online.

According to his plea agreement with prosecutors, Lockwood was involved in the scheme from January 2009 to last December.

He admitted in his plea that he trafficked in illicit certificates of authenticity for legitimate products such as various versions of Microsoft Windows operating systems.

His company paid Ross $1,127,190 between December 2012 and July 2013, according to the plea agreement. He also paid more than $1.5 million to a conspirator in Washington and $1.2 million to Davachi in Maryland.

According to documents filed in Davachi’s case, Ross was the principal supplier of the illicit products to Davachi and others, who then sold them to unsuspecting customers through various online sites. But Davachi also had direct contact with a Chinese source and transferred about $672,000 to an account in China.

Davachi allegedly sold products, such as various versions of Microsoft Windows, for a third to half of the suggested retail price, according to the documents.

Some of the unauthorized software products allegedly were sold through an eBay account on behalf of the Project Contact Africa charity. The site claimed that the sales were “100 percent to charity.”

Davachi took advantage of the charity’s status to avoid paying full registration and listing fees to eBay and PayPal, according to the allegations. He then allowed other co-conspirators to sell their products through the site to avoid those fees in exchange for paying him a portion of the money they saved, the documents allege.

Financial records of the charity showed that it had received about $4.8 million from the sale of software products, federal investigators determined.

While the investigation was ongoing and before criminal charges had been filed, federal prosecutors took legal action to seize the assets of those allegedly involved.

Throughout 2014, authorities seized more than $18 million in real estate, money and motor vehicles allegedly bought with illegally obtained money, according to previously filed court documents.

In Davachi’s case, agents executed a search warrant at his residence and seized $72,000 in cash, 2,716 mint coins, 665 Canadian mint coins, 164 silver pieces and a $71,000 Tesla automobile. They also seized thousands of counterfeit and unauthorized software and software products, the documents allege.

Federal authorities seized Ross’ Kansas City, North, home and three other residences he owned in Gladstone and Raytown.

According to the previously filed court documents, conspiracy participants reaped about $30 million in profits during the conspiracy, and customers paid about $90 million for the illegal products.

The largest previous case of its kind resulted in a man’s 2013 guilty plea in Delaware to distributing about $100 million in pirated software.

Prosecutors indicated that additional criminal indictments in the Kansas City case could come next month.

This story was originally published June 19, 2015 at 9:39 AM with the headline "Federal officials in KC file charges in massive international software fraud case."