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For Immediate Release
December 9, 1999

CONTACT:  214/659-8707

 
INTERNATIONAL ECONOMIC ESPIONAGE DEFENDANTS
AGREE TO PLEAD GUILTY TO FEDERAL CHARGES

United States Attorney Paul E. Coggins and Danny Defenbaugh, Special Agent in Charge of the Federal Bureau of Investigation, announced today that three individual defendants and three corporate  defendants in a multi-million dollar international economic espionage case have agreed to plead guilty to federal charges.  Jack Shearer, age 53, of Montgomery, Texas; William Robert Humes, age 59, of Arlington, Texas; and Jack Edward Nafus, age 50, of River Ridge, Louisiana, have signed plea agreements stating that they will plead guilty to an Information filed today in United States District Court.

United States Attorney Coggins stated, "This is the first Economic Espionage Act case in which the defendants agreed to plead guilty to taking trade secret information and actually converting the stolen information into manufactured products that were placed in the stream of commerce."

According to the plea papers filed this morning in federal court, Jack Shearer agrees to plead guilty to two counts of the Information which charge him with conspiracy to steal trade secrets, in violation of Title 18, United States Code, Section 1832(a)(5).  Jack Edward Nafus also agrees to plead guilty to one count of the Information which charges him with the same offense.  William Robert Humes has agreed to plead guilty to one count of the Information which charges him with theft of trade secrets, in violation of Title 18, United States Code, Section 1832(a)(5).  If convicted on all counts, Jack Shearer faces a maximum possible punishment of  twenty years imprisonment and a fine not to exceed $500,000.  Jack Edward Nafus and William Robert Humes each face a maximum possible punishment of ten years imprisonment and a fine not to exceed $250,000 each.  The defendants will be arraigned before United States District Judge Sidney A. Fitzwater on December 17, 1999.

In addition, three corporations founded by Jack Shearer -- Tejas Procurement Services, Inc.; Tejas Compressor Systems, Inc.; and Procurement Solutions International, L.L.C. -- have agreed to plead guilty to federal charges.  Tejas Procurement Services, Inc.,  Tejas Compressor Systems, Inc., and Procurement Solutions International, L.L.C., by their duly appointed representatives, have agreed to plead guilty  to conspiracy to steal trade secrets.  Each of  the corporate defendants  faces  fines of up to $5,000,000  and court-ordered restitution.  In addition, each corporate defendant has agreed to forfeit to the government all ill-gotten gains from the conspiracy.  Tejas' revenues from the stolen trade secrets was in excess of $10 million.

According to court documents, from 1996, and continuing through February, 1999, Jack Shearer stole proprietary trade secrets from his former employer, Solar Turbines Incorporated (Solar) headquartered in San Diego, California.  Solar designs and manufactures industrial gas turbine engines and turbo machinery systems for the production and transmission of crude oil, petroleum products and natural gas; generating electricity and thermal energy for a wide variety of industrial applications; and for the fast ferry marine market.  Solar's equipment, distributed worldwide, is used to provide electrical power for industrial operations such as oil drilling operations.  Solar, with approximately 5100 employees worldwide, is a wholly owned subsidiary of Caterpillar Inc., the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines.

Shearer worked for Solar for twenty-six years until his employment was terminated in 1992.  While he was employed at Solar, Shearer lived overseas and serviced a sales territory that included Libya, Jordan, Syria, Lebanon, Iraq, Iran and Saudi Arabia.  When Shearer was terminated from Solar, he started Tejas Compressor Systems, Inc., and Tejas Procurement Services, Inc., headquartered in Conroe, Texas, in order to compete with his former employer.  Tejas was created with the intention of overhauling and refurbishing Solar turbines and compressors and providing field maintenance service for customers who owned Solar equipment.

Shearer acknowledged that he obtained Solar's trade secret information and used that information to manufacture counterfeit Solar parts through Tejas.  Shearer obtained this confidential trade secret information through at least three individuals, defendant William Robert Humes and  defendant Jack Edward Nafus, as well as a third named individual, now all former employees of Solar.  Tejas, at Shearer's direction, paid each of these Solar employees to provide Solar drawings, plans, and schematics that included confidential specifications describing the dimensions and manufacturing details of Solar parts.  Shearer acknowledged that he was aware that these payments constituted unlawful transactions and that he knew that stealing this proprietary trade secret information would injure Solar.

From 1995 to 1998, Tejas, at the direction of Jack Shearer, paid William Robert Humes at least $40,992 in order to provide confidential and proprietary Solar plans.  From 1993 to 1999, Tejas, at the direction of Jack Shearer, paid Jack Edward Nafus at least $26,700 to provide confidential and proprietary Solar plans and other confidential manufacturing information necessary to manufacture Solar parts.  In fact, Nafus entered into an arrangement with Shearer, on behalf of Tejas, whereby Nafus would receive payments of $2000 per month, beginning in 1998, to provide this confidential information to Tejas on a regular basis.  Additionally, Tejas, at the direction of Shearer, also paid the above-mentioned third named individual at least $42,050 to provide Solar with confidential and proprietary plans and manufacturing information.

After receiving the proprietary information, Jack Shearer used this information for his own economic benefit as well as the benefit and private commercial advantage of his companies, Tejas and Procurement Solutions International, L.L.C. (PSI), an oil and gas parts company Shearer founded in the fall of 1998 to compete with Tejas.   He advised his employees to "sanitize" the Solar plans, drawings, designs and schematics, by removing Solar's proprietary warnings and transferring the information to third party machine shops.   However, in some cases, Jack Shearer transferred the Solar plans, drawings, designs and schematics to third party machine shops with Solar's proprietary warnings still affixed and clearly visible.  Solar parts have a specialized form, fit, and function and plans depicting Solar parts are readily identifiable as Solar proprietary plans and specifications.

Over the years, Tejas developed a collection of Solar plans that numbered in the many hundreds, and Tejas provided various third parties trade secret manufacturing information contained in these plans pertaining to hundreds of Solar parts.  Various third party machine shops received Solar's trade secrets and began to manufacture counterfeit Solar parts at Shearer's direction.  Because the counterfeit parts produced by these machine shops were not manufactured to Solar's safety standards, their use raises serious safety concerns.

Once these third party machine shops had manufactured the counterfeit Solar parts, the parts were either shipped directly from the machine shops or to Tejas for Shearer's customers.  Jack Shearer acknowledges that he knew the sale of the counterfeit Solar parts would injure Solar, the true owner of the trade secrets.  This trade secret information could only be obtained from Solar and was not available to be purchased by the general public.  Jack Shearer and Tejas instructed its sales employees to falsely represent to customers that the counterfeit Solar parts made by the third party machine shops were in fact genuine.  Using the Solar drawings as a guide, Jack Shearer and Tejas instructed its employees to place identical Solar parts numbers on the counterfeit manufactured parts in order to deceive Tejas customers.  Jack Shearer and Tejas also instructed its employees to create "Certificates of Compliance" for the counterfeit parts that were similar to genuine Solar certificates.  These certificates were created specifically for Tejas customers that requested proof of genuine Solar parts.

Shearer would also, on behalf of PSI, purchase stolen Solar trade secret information, specifically information on Solar fuel control valves for its top-of-the-line turbine engine, from Jack Edward Nafus in return for cash payments.  From January to May, 1999, PSI paid Nafus at least $6,500 in cash for the stolen Solar trade secret information.  Shearer and PSI passed the trade secret information to a machine shop in order to manufacture counterfeit Solar valves for Tejas' main customer, an Iranian national businessman who operated an oil and gas parts broker business in  Uppsala, Sweden.  This businessman placed millions of dollars of orders per year with Tejas and orders he placed were designed for oil field applications and painted desert beige.

Tejas and a number of its employees became suspicious that the parts ordered by this Iranian national businessman were going to prohibited countries.  One of Tejas' suppliers refused to manufacture parts for Tejas because it determined, based merely on the type of gear sought to be   manufactured, that it was a proprietary Solar part of a Solar turbine engine located in Iran.  Among other reasons, the manufacturer refused to manufacture the part for Tejas because it was in violation of the Presidential Order for selling such parts to prohibited countries such as Iran.  In another instance, a Tejas employee called Jack Edward Nafus to inquire about a price quote for an order placed by this Iranian national businessman and learned from Nafus the type of shaft she was inquiring about and trying to procure belonged to a turbine unit located in Iraq.  Nafus refused to provide the information to Tejas unless Tejas could provide verification that the shaft was not destined to a customer in an embargoed country.

The use of Solar's confidential information to manufacture counterfeit Solar parts was profitable for Tejas and, in fact, the substantial revenue generated from this activity became the predominant source of Tejas' income.  By 1998, Tejas revenues were in the $8-9 million range.  Of that amount, the substantial majority was based on procurement activity including, in substantial part, the manufacture of counterfeit Solar parts using Solar's confidential and proprietary information.

United States Attorney Coggins noted the significance of this case and stated, "There have been only sixteen cases under the Economic Espionage Act since its passage in 1996, and this has been the most complex and far-reaching, and has involved  the widest dissemination of trade secrets.  Trade secrets are valuable properties, and their theft can cripple or destroy a company."

United States Attorney Coggins praised Solar Turbines Incorporated  for being an outstanding corporate citizen.  He said, "Solar's  courage in coming forward and reporting their suspicions to the Federal Bureau of Investigation  is to be highly commended."  United States Attorney Coggins also praised the extensive investigative efforts of the Federal Bureau of Investigation and the prosecutive support of Assistant United States Attorney Matthew Yarbrough.

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• More Information on:  Defendants' Sentences
• More Information on:  The Economic Espionage Act
• More Information on:  Protecting Intellectual Property Right