Federal prosecutors on Thursday unveiled details of a huge, transcontinental software piracy case that originated with a tip to federal agents in Kansas City more than two years ago.
Among the largest software piracy cases ever investigated by the U.S. Department of Justice, it involved defendants across the United States as well as Asian and European conspirators, according to prosecutors in Kansas City.
Authorities estimate that more than $100 million worth of illicit, unauthorized and counterfeit software products and digital codes were sold to thousands of online customers by members of the piracy ring in the United States.
“It is a classic 21st century case,” said Assistant U.S. Attorney Curt Bohling.
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But it took plenty of old-fashioned sleuthing by federal agents to uncover the scope of the conspiracy, he said.
“Pirating software, particularly on this massive scale, damages the American economy, hurts private businesses and harms the unsuspecting buyer,” said Shawn Gibson with the Kansas City office of Homeland Security Investigations.
Six men from five states, including a resident of Kansas City, North, have pleaded guilty so far, but officials say the investigation is continuing and additional charges are possible.
Gibson called the plea agreements a historic day in the fight against the theft of intellectual property.
The last of the six charged defendants, Rex Yang Jr., 38, of Seattle, pleaded guilty late Wednesday afternoon in U.S. District Court in Kansas City to a charge of conspiracy to commit and conceal offenses against the United States.
In their guilty pleas, the defendants have admitted that they conspired to import and resell counterfeit and stolen software products, activation codes and serial numbers for the software.
Conspirators in the United States obtained the pirated products, labels and codes from counterfeiters in China, Singapore and Europe, according to prosecutors.
They resold the products through their company websites or online commerce sites such as eBay and Amazon at prices significantly lower than legitimately obtained products.
Tammy Dickinson, U.S. attorney for the Western District of Missouri, said conspirators in the case distributed more than 170,000 product activation key codes.
But because many of the codes were sold multiple times, authorities do not know how many consumers were affected. She said many customers paid for the codes, then discovered they did not work.
Authorities said the conspirators reaped about $30 million in profits. Besides filing the criminal charges, prosecutors have seized more than $20 million in cash, real estate, automobiles, jewelry and other property bought by conspirators with the profits obtained from the conspiracy.
Those seizures include more than $10 million from bank and investment accounts, 10 luxury motor vehicles and 27 parcels of real estate, including several high-end residences in the Seattle area.
The investigation began in April 2013 when agents with Homeland Security Investigations in Kansas City got a tip about an area man selling unauthorized and counterfeit Microsoft products.
That man, Casey Lee Ross, 29, operated a business called Software Slashers.
He pleaded guilty in June to the same conspiracy charge that Yang pleaded guilty to Wednesday.
His sentencing is scheduled for Feb. 4.
According to his plea agreement, Ross admitted to obtaining from Chinese suppliers more than 30,000 key codes and counterfeit product keycards for Microsoft and Adobe products between 2009 and 2013. Those codes allow full access to unlocked, licensed versions of copyright software programs.
Ross had the items delivered to him or arranged for them to be shipped to co-conspirators. Records obtained by investigators showed that more than $3.3 million was transferred to his bank accounts from other conspirators.
Other defendants who have pleaded guilty are Matthew Lockwood, 38, of Denver; Reza Davachi, 41, of Damascus, Md.; Jake H. Schwartz, 28, of Seattle; and Arunachalam Annamalai, 48, a citizen of India who lives in Las Vegas.
Lockwood trafficked in illicit certificates of authenticity for products such as Microsoft Windows operating systems, which he sold online through his business, Discount Mountain. He obtained the items from Ross, Davachi and others.
Davachi obtained merchandise from Ross, but he also had contacts in China. Bank records showed that he transferred more than $670,000 to an account in China.
He sold some of the unauthorized products through an online charity account. By using the charity designation, prosecutors said, Davachi was able to pay discounted registration and listing fees to eBay and PayPal. He allowed other conspirators to sell their items through the charity site in exchange for paying him a portion of the money they saved.
Customers of the site were told that 100 percent of the proceeds would go to the charity. Instead, Davachi diverted some of the money to his own company.
Schwartz admitted in his plea that he was aware of Yang’s involvement in the case and helped him set up a different company to avoid detection after Yang’s company was sued by Adobe for copyright and trademark infringement.
In Annamalai’s plea agreement, he admitted to buying more than 2,500 Microsoft software product key codes from Ross.
Those codes and electronic serial numbers are used to obtain full access to unlocked, licensed versions of Microsoft copyright software programs.
Yang, through his business, Digisoft, obtained certificate of authenticity labels that were supposed to be affixed to physical products. Those labels contained product key codes for copyright Microsoft computer programs. He then sold those codes to customers online.
A search of his business and residence last December turned up more than 10,000 Microsoft certificates of authenticity. In some cases, the same codes were sold to multiple customers.
His bank records show that he paid several million dollars to bank accounts controlled by Ross, Lockwood and Davachi.