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Chip Thefts a Silicon Gold Rush

COLUMN ONE

From inside pilferage to brazen heists, crime is costing high-tech companies billions of dollars. Lax security has helped fuel a black market for computer components that are hard to trace and easy to sell.

February 23, 1996|RICHARD C. PADDOCK and JULIE PITTA | TIMES STAFF WRITERS

SAN JOSE — It looked like any small computer store. Facing a busy commercial street, it had a big sign out front and its own delivery vans. Yet, somehow, it never seemed to attract many customers.

As it turned out, authorities say, it didn't need them.

In reality, Prestige Computers was the center of one of the biggest computer chip theft rings in the Silicon Valley, law enforcement officials say. From there, they allege, its operators planned armed robberies and laundered stolen computer components.

The thieves' undoing came in May when they tried to rob what they thought was an Intel Corp. warehouse, officials said. In fact, it was part of an elaborate FBI sting. The building was empty and its workers were federal agents in bulletproof vests. Ultimately, 17 people connected with Prestige Computers were arrested.

"It sends a message: Hey, the next warehouse you hit, the police and the FBI may be waiting for you," said FBI supervisor Richard J. Bernes, who oversaw the nine-month operation.

But the San Jose sting was a rare success story in law enforcement's running war with thieves who operate in one of the world's most lucrative black markets: stolen computer chips.

Over the last five years, as the high-tech industry has boomed, thefts around the globe have soared more than 100-fold by some estimates.

In the Silicon Valley alone, computer companies lose $1 million a week. Industry analysts estimate that thefts last year cost U.S. companies $8 billion worth of components, based on retail value.

"Technology is the lifeblood of the United States and we are seeing theft steal the competitive edge of this industry," said MaryLu Korkuch, marketing manager for New Jersey-based Chubb & Sons, one of the biggest insurers of high-tech companies.

Ounce for ounce, top-of-the-line computer chips are more valuable than gold and safer to sell than cocaine. The tiny pieces of silicon--such as central processing units that power personal computers and memory chips that store information--are lightweight and easy to transport.

These facts plus the industry's often lax security and the growing demand for components have helped fuel a rise in thefts ranging from small-scale employee pilferage to huge armed robberies--including a record $9.9-million heist in Irvine in May.

One study estimated that 57% of all thefts, big and small, are committed by company insiders--up to 70% when contractors and suppliers are included.

"Employees may be making a little more than minimum wage," said San Jose Police Officer Bruce Toney, who specializes in high-tech crime. "A central processing unit is about the size of two matchbooks. Put that in your pocket and you can double your income for the week."

Crime has become increasingly violent in what used to be considered a safe industry: In the last year, computer company employees here and abroad have been shot, knifed, pistol-whipped, bludgeoned and Maced in chip robberies.

So great is the hunger for computer parts that purloined chips are easily laundered through a sophisticated network of distributors, changing hands as many as 18 times in 72 hours as they make their way back onto the legitimate market, officials say. Because most chips have no serial numbers, they cannot be traced.

Asian gangs in the United States are heavily involved in the illicit trade, the FBI says. Many components stolen here are shipped to Asia, where they are installed in personal computers and sent back to the U.S. market, undercutting legitimate companies. Other hot components remain in the United States where they end up in the hands of small-scale computer assemblers. Still others are sold in Russia's growing black market.

Traditional law enforcement has been largely unsuccessful in halting thefts and most high-tech thieves are never apprehended.

Frustrated by the surge in armed holdups in the Silicon Valley, the FBI last year staged the kind of sting usually reserved for corrupt politicians and mobsters.

An earlier investigation had led agents to suspect that the store was the center of a crime ring. A young Vietnamese American police officer from the city of Santa Clara posed as an Intel Corp. worker. He was planted at a health club, where members of the suspected ring were known to work out. In the locker room, another operative and the agent talked about the agent's "work" for Intel.

Soon, officials said, he was approached by ring members and began selling them "stolen" Pentium and memory chips, receiving $60,000 in cash for hundreds of chips over a four-month period, court records show.

When the group indicated it wanted more, the officer mentioned a loosely guarded warehouse in nearby Milpitas. He gave them sketches of the floor plan and told them when a big shipment of Pentium chips would arrive, the court records show. At their request, he left a warehouse door unlocked on the appointed day.

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