[BreachExchange] Sinovel Wind Group found guilty of IP theft valued at $800 million

Destry Winant destry at riskbasedsecurity.com
Wed Feb 21 18:30:09 EST 2018


In a case of international intrigue — which covered the span of more
than six years — Sinovel Wind Group, a manufacturer and exporter of
wind turbines, and three of its employees have been convicted of trade
secret theft following a 12-day jury trial in Wisconsin.

The path to justice for the victimized company, American
Superconductor (AMSC), was long by any measure and damaging. The value
of the technology stolen is estimated to be more than $800 million. In
addition, AMSC lost more than $1 billion in shareholder equity.

Sinovel thieving backstory

In 2011, Wisconsin-based, AMSC filed both criminal and civil
complaints against Sinovel. Sinovel had apparently breached the
partnership agreement, and AMSC was unhappy because their intellectual
property (IP) surrounding wind turbines had been taken and used to
improve the Chinese electric grid.

Moving forward to 2013, the Department of Justice (DOJ) filed a
criminal complaint against Sinovel for its role in attempting to
“convert a trade secret that is related to a product that is used and
intended for use in interstate and foreign commerce,” specifically the
source code relevant to AMSC’s technology. This complaint was quicky
followed by an indictment that showed Sinovel still owed AMSC $100
million for software, products and services and had contracted for an
additional $700 million of business.

Individuals involved in the IP theft

Two Sinovel employees and one person employed by AMSC Windtec GmbH
were convicted:

Su Liying — Deputy director of Sinovel’s Research and Development.
Resident in China, Chinese national.

Zhao Haichun — Technology manager for Sinovel. Resident in China,
Chinese national.

Dejan Karabasevic (aka Dan Karabasevic) — A Servian national who was
employed by AMSC Windtec GmbH, located in Klagenfurt, Austria. AMSC
Windtec is a wholly-owned AMSC subsidiary. Karabasevic submitted his
resignation in March 2011, but he retained access to AMSC Windtec’s
computer network into May 2011, with his final day within AMSC Windtec
being June 30, 2011.

The crime — insider theft of trade secrets

>From January 2011 through December 2012, Sinovel (their employees) and
Karabasevic worked together to purloin the trade secrets of AMSC with
the intent to produce Low Voltage Ride Through (LVRT)-compliant wind
turbines and to retrofit existing turbines with LVRT technology. AMSC
notes that the value of the stolen technology and business loss was in
excess of $800 million.

Su and Zhao worked together to suborn Karabasevic, specifically
providing him with a clandestine one-year contract in June 2011 to run
through June 2012. Sinovel provided a laptop to Karabasevic for the
purpose of adapting “AMSC’s intellectual property for Sinovel’s
unrestricted use.”

The indictment shows that Karabasevic had no problem breaking his
employer's trust and successfully sharing the desired PM3000 software
to Sinovel between May and June 2011, and that Karabasevic adapted the
software so that it could be used in an unlimited and unrestricted
manner by Sinovel.

Sinovel, apparently happy with Karabasevic’s performance, offered him
a contract with a salary of $1.7 million for him to work with Sinovel
from May 2011 through June 2017. In an act to seemingly verify what
Karabasevic had provided, in 2012 Sinovel commissioned and installed a
number of wind turbines in Massachusetts.


In late January 2018, AMSC and the DOJ had their day in court.
Following an 11-day trial, a jury convicted Sinovel of conspiracy to
commit trade secret theft, theft of trade secrets, and wire fraud. The
court set the date of June 4, 2018, for sentencing. During the trial,
it was shown how Karabasevic transferred intellectual property from
AMSC in Wisconsin to a computer in Klagenfurt.

Zhao and Su are both residents in China and are not in U.S. custody.
Karabasevic now resides in Serbia; he, too, is not in U.S. custody.

Cost to AMSC

AMSC had a loss of more than $1 billion in shareholder equity. The
company lost over $800 million in revenue owed to it by the Sinovel
contracts. And it had to lay off over half of its global workforce,
more than 700 individuals. It would appear that Sinovel continues to
have the AMSC technology but refrained from using it again in the
United States once the Massachusetts projects became known to AMSC and
the DOJ.

Lessons learned: Have a data loss prevention strategy

Having a data loss prevention (DLP) capability within the AMSC
infrastructure may have identified the activities of Sinovel early,
and not the fiscal foot dragging on accounts payable, and the flight
of one of their technologists.

The fact that AMSC was able to reconstruct the events from the data
logs and stores is commendable and no doubt assisted the prosecution
of Sinovel. Similarly, the construction companies Sinovel had
contracted with to assist in the erection of the wind turbines in
Massachusetts were called out as being very cooperative in providing
information on Sinovel’s building of the three wind turbines.

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