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A Massachusetts distributor accused of trafficking in counterfeit military goods from China, some of which found their way to the Naval Submarine Base in Groton, pleaded guilty Tuesday in Hartford’s U.S. District Court to a scheme that involved thousands of falsely marked integrated circuits.
Peter Picone, 41, of Methuen, Mass., faced imprisonment of up to 75 years on the initial eight-count indictment. He pleaded guilty before Magistrate Judge Donna F. Martinez to four counts in the trafficking scheme, taking a plea deal that carries a maximum sentence of 20 years and a top fine of $5 million.
It was only the second conviction nationally on the relatively new charge of trafficking in counterfeit military goods. The federal crime was enacted as part of the National Defense Authorization Act of 2011.
“Many of Picone’s customers specified in their orders that they would not accept anything but new (integrated circuits) that were not from China, but Picone told them that the ICs were new and manufactured in Europe,” according to a case summary provided Tuesday by U.S. prosecutors. “Testing by the Navy and one of its contractors revealed that in fact the ICs purchased from Picone had been resurfaced to change the date code and to affix counterfeit marks, all in order to hide their true pedigree.”
Picone’s indictment last year had raised serious concerns about the nation’s military security, since counterfeit semiconductors can contain malicious codes and enable foreign governments to disable systems, intercept communications and listen in on computer networks.
Immediately after Picone’s indictment, U.S. Sen. Chris Murphy, D-Conn., said the case demonstrated a “widespread problem” of counterfeit parts in the nation’s military supply chain. Murphy called for encouraging more domestic production of critical military parts.
According to the indictment recorded last year, Picone and unidentified co-conspirators shipped counterfeit integrated circuits from Hong Kong or China to the sub base on at least three occasions between November 2011 and February 2012. It was unclear whether any of the components made their way onto the nuclear submarines, but at least two — one for an alarm panel, another for radio-transmission testing — had been intended for active-duty vessels in Groton.
The counterfeit parts bore the trademarks of legitimate companies such as Xilinx, National Semiconductor and Motorola, according to the indictment.
Electric Boat is responsible for testing parts before they are installed on nuclear submarines, but EB has declined to comment in the past on whether the counterfeit parts were discovered before being installed. EB did not have a comment on the case Tuesday.
Picone’s arrest followed a joint probe by the Homeland Security Investigations division of the U.S. Immigration and Customs Enforcement agency, the Defense Criminal Investigative Service and the Naval Criminal Investigative Service.
The indictment against Picone returned by a federal grand jury in New Haven last June charged him with conspiring to traffic in counterfeit goods, conspiring to traffic in counterfeit military goods, trafficking in counterfeit goods, conspiring to commit wire fraud, wire fraud and conspiring to commit money laundering.
Picone, as part of the plea agreement, agreed to the immediate forfeiture of $70,050 as well as his rights to nearly 13,000 counterfeit integrated circuits seized during searches of his business and residence. Sentencing is expected Aug. 22.
“Picone put personal gain above the safety and well-being of dedicated U.S. servicemen and women,” said acting Assistant Attorney General Raman at the time of the indictment. “Picone went to great lengths to conceal the true origin of counterfeit semiconductors in order to sell the devices as seemingly legitimate and reliable components for use in nuclear submarines and other complex machinery.”