August 3, 2007

Xiadong Meng convicted for committing economic espionage to benefit the People's Republic of China Navy Research Center and for violating the Arms Export Control Act
First Conviction in the United States involving source code under the Arms Export Control Act

SAN JOSE - Assistant Attorney General for National Security Kenneth L. Wainstein and United States Attorney Scott N. Schools announced that Xiaodong Sheldon Meng, 42, formerly of Beijing, China, and presently a resident of Cupertino, California, pleaded guilty Wednesday to violating the Economic Espionage Act, the Arms Export Control Act, and the International Traffic in Arms Regulations.

The defendant entered into a plea agreement whereby he pleaded guilty to 2 counts of a superseding indictment filed in December 2006. The prosecution is the result of a nearly three-year investigation led by U.S. Immigration and Customs Enforcement (ICE), and assisted by the U.S. Attorney's Office Computer Hacking and Intellectual Property (CHIP) Unit, the Federal Bureau of Investigation (FBI), Customs & Border Protection (CBP), The Department of State and the Department of Defense.

Meng pleaded guilty to violating the Economic Espionage Act by possessing a trade secret belonging to Quantum3D, a San Jose company at which he was formerly employed, intending and knowing that this possession would benefit the People's Republic of China ("PRC") Navy Research Center. The trade secret, known as "Mantis," is a Quantum3D product used to simulate real world motion for military training purposes. Meng installed a demonstration unit of Mantis on the PRC Navy site and altered Mantis to make it appear as if it belonged to ORAD, his new employer and a PRC-based competitor of Quantum3D. This altered version of Mantis was included as part of the demonstration project in the PRC.

Meng also pleaded guilty to willfully violating the Arms Export Control Act and International Traffic in Arms Regulations when he exported "viXsen" source code, a Quantum 3D product that is a designated defense article on the United States Munitions List, and for which Meng had no Department of State export license. viXsen is a visual simulation software program used for training military fighter pilots.

"This conviction, the first in the nation for illegal exports of military-related source code, demonstrates the importance of safeguarding our nation's military secrets and should serve notice to others who would compromise our national security for profit," said Assistant Attorney General for National Security Kenneth L. Wainstein. "This case is the latest evidence of the Department's enhanced investigative and prosecutorial efforts to keep America's critical technology from falling into the wrong hands."

"One of ICE's top priorities is ensuring that U.S. military products and sensitive technology does not fall into the hands of those who might inflict harm upon America or its allies," said Julie L. Myers, Department of Homeland Security Assistant Secretary for ICE. "These items, such as the proprietary source code central to this case, are controlled in the interest of national security. We will continue to work with our law enforcement partners and industry to enforce U.S. technology export laws."

"The economic -- and often national -- security of the United States rests largely upon a foundation of technological superiority, and to maintain that superiority our trade secrets must be protected with the fervency with which we guard other vital interests," said Charlene B. Thornton, special agent in charge of the FBI's San Francisco office. "The successful prosecution of Mr. Meng is a blow to those who seek to circumvent the long and costly process of research and development to gain a technological advantage through lies, deceit, and theft; it is a victory in the struggle to ensure the economic security of Silicon Valley and the United States." Quantum3D, Inc. has cooperated fully in the government's investigation. A company official noted that the company "believes that enforcement of export and trade secret laws is critical to the functioning of our industry and we're pleased to work with the government in these efforts."

The U.S. Attorney's Offices in the Northern District of Alabama, District of Minnesota, and Middle District of Florida also joined the plea agreement as some of the conduct in the case occurred in those jurisdictions.

Meng is scheduled to be sentenced before United States District Judge Jeremy Fogel in San Jose on January 23, 2008, at 10:00 a.m. Meng is currently out of custody on $500,000 bond.

Under the terms of the plea agreement, the maximum term of imprisonment is twenty-four months. Meng also is subject to a maximum fine of $500,000 on the Economic Espionage Act conviction and a maximum fine of $1,000,000 on the Arm Export Control Act conviction, and a three-year term of supervised release.

-- ICE --

U.S. Immigration and Customs Enforcement (ICE) was established in March 2003 as the largest investigative arm of the Department of Homeland Security. ICE is comprised of five integrated divisions that form a 21st century law enforcement agency with broad responsibilities for a number of key homeland security priorities.

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