TRUTH IN BROADBAND: MAYOR’S OFFICE ISSUES RFI TO PROMOTE OPEN AND TRANSPARENT INTERNET

Chief Technology Officer calls on experts to develop system to monitor internet service providers and disclose when they are engaging in discriminatory practices

  The Mayor's Office of the Chief Technology Officer today released a "Truth in Broadband” Request for Information (RFI) to establish transparency and accountability in how carriers provide internet service to consumers. The goal of the RFI is to gather input from industry and subject matter experts to help implement a system for monitoring the quality and performance of internet service providers.

The move comes as the Federal Communications Commission (FCC) approved regulations that would repeal net neutrality protections and give internet service providers control over what content reaches customers and what customers can send to the internet.

“Making New York the fairest city in America means protecting the fundamental right to access an open internet,” said Mayor Bill de Blasio. “We are the first city to take this step as part of our plan to hold internet service providers accountable for discriminatory practices.”

“We applaud the Mayor’s initiative to collect and monitor data that will bring into focus what internet service providers are providing – and not providing -- to consumers,” said New York Attorney General Eric T. Schneiderman.  “My office is committed to holding these providers accountable for their promises.”

“An open internet for all – with no restrictions on quality or speed – is a fundamental component of a free and equal society,” said Council Speaker Corey Johnson. “We remain committed to ensuring net neutrality. The ‘Truth in Broadband’ request will facilitate our work towards creating a more equitable city for all New Yorkers.” 

The Mayor's Office of the Chief Technology Officer is charged with implementing the Mayor's goal for universal broadband for all New Yorkers by 2025. The Truth in Broadband RFI builds on the NYC Connected RFI for Citywide Broadband and the Governors Island Connectivity Challenge, both of which are aimed at delivering new infrastructure and service. In July 2017, Mayor de Blasio led a bipartisan coalition of 65 mayors in opposition to the reclassification of broadband as an information service.

The FCC has retreated from ensuring accountability and transparency of broadband providers. FCC Chairman Ajit Pai has proposed a lower speed standard for broadband and changes to how the FCC collects and reports data on broadband performance and availability. On December 14th, 2017 the FCC re-classified broadband as an information service and significantly reduced regulatory oversight of Internet Service Providers (“ISPs”). The move also repealed regulations requiring open internet practices. ISPs may now make discriminatory and self-serving decisions to slow or block some content for financial or political gain. In the new rules, ISPs are only required to self-disclose limited information about their network management practices, performance, and commercial terms.

Though reclassification will allow large internet service providers to block or throttle content at will, they say they do not plan to do so. Without monitored transparency, people cannot know if ISPs are honoring that claim.

Anyone can respond to the RFI. Responses to the Truth in Broadband RFI are due February 28, 2018 and can be submitted at http://on.nyc.gov/truthinbroadbandrfi.

"Our commitment to universal, affordable, high-speed internet is a commitment to an open internet,” said Miguel Gamiño, Jr., New York City Chief Technology Officer. “We’re engaging the experts so that we can appropriately and boldly act to protect fair and equal access to the Internet for everyone, where the federal government will not."

MAYOR DE BLASIO APPOINTS VITO MUSTACIUOLO AS GENERAL MANAGER OF NYCHA

AnnMarie Santiago appointed new Deputy Commissioner of the Division of Enforcement and Neighborhood Services at HPD

  Mayor Bill de Blasio today appointed Vito Mustaciuolo as acting General Manager of the New York City Public Housing Authority. Mustaciuolo brings decades of experience securing repairs for tenants and holding landlords accountable at the Department of Housing Preservation and Development’s Division of Enforcement and Neighborhood Services, including as its Deputy Commissioner since 2009. At HPD, Mustaciuolo launched and managed the City’s Alternative Enforcement and Emergency Repair programs, initiatives that have rehabilitated hundreds of apartment buildings and protected affordable homes for tens of thousands of New Yorkers.

As NYCHA’s principal administrator, the General Manager oversees the maintenance of all developments. Mustaciuolo will succeed NYCHA’s current General Manager, Michael Kelly. Since Kelly's appointment is 2015, NYCHA has reduced average repair wait times by 8 days, begun a massive resiliency program to modernize buildings, and launched NextGen Operations to improve customer service and resident engagement.

"This Administration has made an unprecedented commitment to strengthening public housing, and we are bringing in one of the City's best to further our progress. Vito Mustaciuolo has a proven track record of fighting for tenants across the five boroughs, and I know he will hit the ground running at NYCHA,” said Mayor Bill de Blasio. “I also know we are in good hands with AnnMarie Santiago as HPD’s enforcement boss. A tireless and talented public servant, she’s been a behind-the-scenes driver of some of the City’s most creative and efficient tools for getting property owners to live up to their obligations.”

“Vito Mustaciuolo has a long and successful history of advocating for tenants,” said NYCHA Chair and CEO Shola Olatoye. “His more than 30 years of experience at HPD will be invaluable as we implement broader reforms to strengthen public housing. I’m excited about the operational expertise he brings to the role. I would also like to thank Michael Kelly for his years of public service, especially his two stints at NYCHA.  I and the executive team are grateful for Michael’s deep industry knowledge and connections and his commitment to improving the lives of the 1 in 14 New Yorkers who call NYCHA home."

"I am humbled by Mayor de Blasio's appointment. I want to thank Chair Shola Olatoye for her confidence and support and I look forward to working with the entire NYCHA team," said Vito Mustaciuolo, acting NYCHA General Manager. "My top priorities are advancing the level of service to NYCHA tenants, increased portfolio wide capital improvements, and timely restoration of essential services. There is nothing more important than improving the quality of life of the thousands of families and individuals that call NYCHA 'home'."

AnnMarie Santiago will be promoted to acting Deputy Commissioner of the Division of Enforcement and Neighborhood Services at HPD, a division for which she has worked for 20 years. She is the first Hispanic-American woman to hold the leadership post. Currently Assistant Deputy Commissioner, she has served as Vito Mustaciuolo’s second in command for two years.

“Serving more than 400,000 residents, NYCHA is one of the most critical sources of affordable housing in New York City.   Protecting the quality and safety of that housing stock is paramount, which is why I’m so grateful to HPD Deputy Commissioner Vito Mustaciuolo for stepping in and lending his decades of expertise and experience in housing enforcement.  During this transition, AnnMarie Santiago, Vito’s second in command, will serve as Acting Deputy Commissioner at HPD.  I am confident that HPD’s enforcement work will carry on seamlessly under AnnMarie’s capable and experienced leadership.   The City of New York is fortunate to have tireless, talented public servants like Vito and AnnMarie who are so deeply committed to the safety and well-being of their fellow New Yorkers,” said Maria Torres-Springer, Commissioner of the Department of Housing Preservation and Development.

“At HPD’s Office of Enforcement and Neighborhood Services, we work day in and day out to safeguard the city’s housing stock so that New Yorkers have a safe, decent place to call home.  I am absolutely honored to be called on to fill the shoes of my long-time mentor, Vito Mustaciuolo. As we move forward, my team and I won’t miss a beat and we will continue to push the envelope, build on our experience with new enforcement tools, and hold landlords accountable to their tenants and the law,” said AnnMarie Santiago, acting HPD Deputy Commissioner of Enforcement and Neighborhood Services.

About Vito Mustaciulo:

Vito Mustaciuolo has served as Deputy Commissioner for the Office of Enforcement and Neighborhood Services (ENS) since 2011. Mustaciuolo oversaw a staff of approximately 1,000 employees responsible for assuring owner compliance with the New York City Housing Maintenance Code and the New York State Multiple Dwelling Law throughout the city to promote quality housing for New Yorkers. Mustaciuolo joined HPD in 1984 and held a variety of operational positions in the Divisions of Maintenance, Relocation Services, and Demolition until being appointed as the Assistant Commissioner for Code Enforcement in 1990. In 2001, he was promoted to Associate Commissioner for Enforcement Services. Mustaciuolo played a critical role in drafting and implementing the 2004 Local Law 1, the City’s chief ordinance for lead testing and remediation. In 2008, he received the prestigious Sloan Public Service award for service to the City of New York.

Mustaciuolo, 57, was born and raised on Staten Island, and still lives there with his wife. He has two daughters and three grandchildren. 

About AnnMarie Santiago:

AnnMarie Santiago has served as Assistant Deputy Commissioner for ENS since 2015. She started her career in City government in 1994 as an Urban Fellow working for the Mayor’s office of SRO Housing, the unit charged with monitoring and inspecting Single Room Occupancy dwellings that was later absorbed into HPD.  She joined HPD in 1996 and has served in a variety of capacities.  She was promoted to Associate Commissioner in 2012 and to Assistant Deputy Commissioner in 2015, and received the Sloan Public Service Award in 2017.  She helped create HPD’s Alternative Enforcement Program and Proactive Preservation Initiative to comprehensively address problems in distressed buildings. Her broad portfolio includes managing and analyzing agency data to further the agency’s mission of ensuring the quality and safety of the housing stock and protecting the rights of tenants; monitoring internal performance indicators, staffing, budget, technology; and overseeing EEO, Disciplinary and Labor Management issues. Over the past two years, ENS’ workload expanded significantly as the agency was called upon to assist the Department of Homeless Services’ efforts to monitor and improve conditions of DHS shelters and cluster shelter units. AnnMarie was instrumental in meeting these challenges, developing and implementing internal systems to support HPD’s inspections program and Shelter Repair Squad 2.0.

Born in Manhattan, Santiago, 45, was raised in Long Island City and currently lives in Jamaica, with her husband and two children. 

Congressman Eliot L. Engel Votes NO on Latest Short Term Funding Bill

  Congressman Eliot L. Engel, a member of the House Energy and Commerce Committee, made the following statement:

“Throughout the past year, the GOP put their tax scam first and put children and families last. They spent all their time, energy and votes on tax breaks for corporations and the wealthiest, and put the needs of working families on the backburner.

“For months, Democrats implored the Republicans in the majority to tackle the issues both sides agree must be addressed – but Republicans refused. They refused to deliver an on-time budget. They refused to renew the Children’s Health Insurance Program (CHIP) before it expired on September 30th, then tried to use it as a negotiating tool at the last minute. They refused to fund community health centers that so many kids rely on. They refused to protect DREAMers – young, hardworking people who know no other country but America. They refused to provide disaster aid still needed in Puerto Rico, the Virgin Islands, Texas, Florida and California. And the list goes on.

“The GOP’s failed leadership is only compounded by their empty promises. Tonight, I voted NO on another empty Republican promise.”

Inaugural Ceremony of Councilman Mark Gjonaj

Recently elected 13th City Councilman Mark Gjonaj had his public swearing in today at the Herbert Lehman Educational Campus. It was a packed auditorium with many Bronx Elected officials, and others from outside the Bronx to see the new Albanian American Councilman, as well as friends and constituents. The members of Bronx Congressional delegation however were stuck in Washington with the government shutdown.  

Mistress of Ceremony Lisa Sorin opened the event, with the Salute to the colors by NYPD Post 1824 and Post 2436. The pledge of Allegiance and American National Anthem was done by Renaissance High School Students, with the Albanian National Anthem by Ms. Jessica Raja. The invocation was then given by Imam Edin Ajar.

State Senator Jeff Klein was first to speak of the day he and Mark were fishing off City Island when Mark first said that he wanted to run for the State Assembly. Senator Klein added that this council race was one of the hardest races for him outside of his own. Bronx Democratic County Leader Marcos Crespo was next followed by Public Advocate Leticia James. Assemblyman Michael Benedetto up next thanked the three speakers before him for saying almost exactly what he wanted to say about Councilman Mark Gjonaj who Benedetto had served with for five years in the state assembly. 

The Ambassadors from Albania (Flavetta Faber) and Kosova (Vlora Citaku) each read letters from their respective Prime Ministers who praised Mark Gjonaj for becoming the first Albanian American to be elected to the New York City Council.

Judge Llinet Rosado then swore Mark Gjonaj (with his wife Roberta and two sons) in as the new Councilman from the 13^th City Council District. Councilman Gjonaj said “God has been good to me and my family”. He spoke of helping struggling business corridors in his role as chair of the Small Business committee. He added that he wants to bring more mass transit to areas in the Bronx who are undeserved, a two-percent tax cap, stop the out of control water rate increases, and do more for senior citizens and veteran's. Photos are below.

Above - The Pledge of Allegiance and American National Anthem by Renaissance High School Students.

Below - The Albanian National Anthem by Ms. Jessica Raja.

Above - The Invocation by Imam Edin Ajar.

Below - Flocetta Faver Ambassador from Albania presents Councilman Gjonaj with the letter she       read from the Prime Minister of Albania.

   

Above - Kosova Ambassador Vlora Citaku also read a letter from the Prime Minister of Kosova    congratulating on becoming the first Albanian American in the NYC Council.

Below -  Mark Gjonaj with his wife Roberta and two sons beside him is sworn in by Judge Llinet      Rosado as the Councilman from the 13th City Council District

Above - Councilman Mark Gjonaj speaks of his agenda for the first four years in City  Hall as the City Councilman from the 13th district.

Below - Could Councilman Gjonaj be speaking to his replacement in the state assembly?

18 Arrested at Brooklyn NYCHA Housing Complex on Charges Including Narcotics and Conspiracy

Joint investigation by the Federal Bureau of Investigation, New York City Police Department, Office of the Special Narcotics Prosecutor, and DOI leads to arrests of 18 individuals on charges including narcotics and conspiracy at NYCHA’s Sheepshead/Nostrand Houses

  Mark G. Peters, Commissioner of the New York City Department of Investigation (“DOI”), today announced the arrest of 18 individuals, including three New York City Housing Authority (“NYCHA”) employees, and released a Report that revealed NYCHA’s continued failure to effectively enforce its Permanent Exclusion policy for dangerous criminal offenders. The investigation also uncovered employees purchasing drugs from tenants and targets of the criminal investigation and other misconduct at NYCHA’s Sheepshead/Nostrand Houses. The Report was issued at the conclusion of a 16-month criminal investigation with federal and state law enforcement partners into the Towaz Boyz gang, which resulted in 15 arrests on drug and conspiracy charges, the arrest of one NYCHA employee for illegally facilitating access to a NYCHA apartment allegedly used in narcotics sales, and arrests of two additional NYCHA employees for purchasing marijuana from a Sheepshead apartment while on duty and in uniform. During the course of the investigation, DOI investigators discovered NYCHA was fully aware that two of the defendants charged today had allegedly sold narcotics in NYCHA apartments, lobbies, and stairwells, and had been Permanently Excluded from NYCHA property. Furthermore, when NYCHA became aware that these defendants were still living in the NYCHA apartments in violation of the Permanent Exclusion policy, the Authority failed to take further enforcement action to protect other Sheepshead/Nostrand residents

DOI Commissioner Mark G. Peters said, “Today’s arrests highlight the inherent dangers of allowing serious, recidivist criminals to continue to reside on NYCHA property. DOI’s Report demonstrates NYCHA’s continued failure to exclude these offenders - disregarding its own policies and DOI’s repeated findings in this critical area of safety. By defying its own policy of Permanent Exclusion, NYCHA is placing its residents at risk.” 

“People deserve to leave their homes without fearing the drug dealers and violent gang members loitering around their front doors. The FBI NY Metro Safe Streets Task Force and our partners the NYPD and the City of New York Department of Investigation worked closely on this investigation to stop illegal criminals from disrupting people’s lives. We want this case and these arrests to serve as a warning that we will leverage these partnerships to stop future gang members hoping to fill the void,” said William F. Sweeney, Assistant Director in Charge of the FBI New York Division.

DOI’s investigation exposed significant vulnerabilities in NYCHA’s internal controls concerning Permanent Exclusion, as well as misconduct by NYCHA employees, and alleged criminal activity by numerous unauthorized NYCHA occupants, specifically:

 Two of the defendants charged today, MATTHEW GERARD and JAMEEK BAKER, had previously been arrested for selling crack cocaine at Sheepshead/Nostrand Houses, and BAKER had also been charged with armed robbery. NYCHA Permanently Excluded them from public housing so that their leaseholder relatives could remain living at NYCHA. NYCHA subsequently found both of these defendants still living in the NYCHA apartments in violation of the Permanent Exclusion agreement, but failed to take effective action to protect other Sheepshead/Nostrand residents from the ongoing narcotics activity. 

  Eight additional defendants were residing in public housing or Section 8 apartments without legal authorization and in violation of the lease terms. 

 DOI also arrested a NYCHA caretaker, SHAKINA ROWE, for illegally unlocking a NYCHA apartment, after a court-ordered eviction, in order to enable individuals charged in this investigation to access an apartment known to be used for narcotics sales, according to the charges. Two additional NYCHA employees were arrested for purchasing marijuana while on duty and in uniform.

As a result of this investigation, DOI is re-issuing recommendations it has made in its two prior reports concerning removing recidivist serious criminal offenders from NYCHA properties, including more aggressively prosecuting tenancy cases against NYCHA leaseholders who participated in, knew or should have known, of serious criminal activity being committed by criminal offenders, especially where the offender has already been Permanently Excluded from NYCHA housing. The report also includes new recommendations, including that NYCHA should conduct a comprehensive audit of all arrests referred by NYPD to evaluate NYCHA’s response.

Commissioner Peters thanked New York City Police Department (NYPD) Commissioner James O’Neill and the Brooklyn South Gang Squad, NYPD Captain Anthony Guadagno and Detectives Matthew Jagoda and Robert Chan; Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation William F. Sweeney, Jr.; FBI Special Agent Neil Maxson; Special Narcotics Prosecutor Bridget G. Brennan; Brooklyn District Attorney Eric Gonzalez and Senior Executive for Law Enforcement Operations Gregory A. Thomas; and City Department of Correction Acting Deputy Commissioner Antonio Cruz, for their cooperation and assistance in this investigation. 

Indictments and criminal complaints are accusations. Defendants are presumed innocent until proven guilty

DOI is one of the oldest law-enforcement agencies in the country and New York City’s corruption watchdog. Investigations may involve any agency, officer, elected official or employee of the City, as well as those who do business with or receive benefits from the City. DOI’s strategy attacks corruption comprehensively through systemic investigations that lead to high-impact arrests, preventive internal controls and operational reforms that improve the way the City runs. 

Bribery and Corruption are a Trap. Don’t Get Caught Up. Report It at 212-3-NYC-DOI

Honduran Congressman Charged With Conspiring To Import Cocaine Into The United States And Related Firearms Offenses

  Geoffrey S. Berman, the United States Attorney for the Southern District of New York, and Raymond Donovan, the Special Agent in Charge of the Special Operations Division of the U.S. Drug Enforcement Administration (“DEA”), announced that Honduran congressman Fredy Renan Najera Montoya (“NAJERA”) was charged yesterday in Manhattan federal court with conspiring to import cocaine into the United States and related weapons offenses involving the use and possession of machineguns and destructive devices. 

Manhattan U.S. Attorney Geoffrey S. Berman said:  “As alleged, Fredy Renan Najera Montoya used his power and influence as a Honduran congressman to help facilitate the transport of huge quantities of cocaine from Colombia through Honduras, and ultimately to the streets of the United States.  Along with the DEA, we are committed to attacking the drug trade at every level, regardless of a defendant’s status.  We look forward to trying Najera on U.S. soil.”

Special Agent in Charge Raymond Donovan said:  “As alleged, Fredy Renan Najera Montoya used his position in the Honduran Congress to facilitate huge amounts of drug trafficking and corruption, while using security teams possessing dangerous and deadly weapons that threaten the rule of law and innocent lives.  DEA will continue to go after these dangerous criminal individuals and their violent networks with our counterparts across the world utilizing every law enforcement tool at our disposal.” 

As alleged in the Superseding Indictment unsealed in federal court:[1]

 From 2009 up to 2014, multiple drug trafficking organizations in Honduras and elsewhere worked together, and with support from NAJERA and others, to receive multi-hundred-kilogram loads of cocaine sent to Honduras from, among other places, Colombia via air and maritime routes, and to transport the drugs westward in Honduras toward the border with Guatemala and eventually to the United States.  For protection from official interference, and in order to facilitate the safe passage through Honduras of multi-hundred-kilogram loads of cocaine, drug traffickers paid bribes to public officials, including certain members of the National Congress of Honduras.

NAJERA is a member of the National Congress of Honduras who participated in and supported the drug trafficking activities of large-scale drug traffickers in Honduras and high-ranking members of Mexico’s Sinaloa Cartel.  For example, NAJERA facilitated the receipt of cocaine-laden aircraft at clandestine landing strips in Honduras that were protected by heavily armed security personnel so that the cocaine could be transported through Honduras, sold to the Sinaloa Cartel, and imported into the United States.  NAJERA also participated in a maritime cocaine trafficking venture that involved a $50,000 bribe paid to Fabio Porfirio Lobo, whose father was the President of Honduras at the time of the payment.  On September 5, 2017, in United States v. Lobo, No. 15 Cr. 174 (LGS), U.S. District Judge Lorna G. Schofield sentenced Lobo principally to 24 years in prison based on his conviction for participating in a conspiracy to import cocaine into the United States.

  

The Superseding Indictment charges NAJERA, 41, with three counts:  (1) conspiring to import cocaine into the United States, which carries a mandatory minimum sentence of 10 years in prison and a maximum term of life imprisonment; (2) using and carrying machine guns and destructive devices during, and possessing machine guns and destructive devices in furtherance of, the cocaine-importation conspiracy, which carries a mandatory minimum sentence of 30 years in prison and a maximum term of life imprisonment; and (3) conspiring to use and carry machine guns and destructive devices during, and to possess machine guns and destructive devices in furtherance of, the cocaine-importation conspiracy, which carries a maximum term of life imprisonment. 

Mr. Berman praised the outstanding efforts of the DEA’s Special Operations Division Bilateral Investigations Unit, New York Strike Force, and Tegucigalpa Country Office, as well as the U.S. Department of Justice’s Office of International Affairs.

This case is being handled by the Office’s Terrorism and International Narcotics Unit.  

The charges contained in the Superseding Indictment are merely allegations, and the defendant is presumed innocent unless and until proven guilty.  The potential mandatory minimum and maximum sentences in this case are prescribed by Congress and provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

 [1] As the introductory phrase signifies, the entirety of the text of the Superseding Indictment and the description of the Superseding Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.

Chinese National Sentenced In White Plains Federal Court For Economic Espionage And Theft Of A Trade Secret From U.S. Company

  Geoffrey S. Berman, the United States Attorney for the Southern District of New York, and Dana J. Boente, Acting Assistant Attorney General for National Security, announced that XU JIAQIANG was sentenced yesterday to five years in prison for economic espionage and theft of a trade secret, in connection with XU’s theft of proprietary source code from XU’s former employer, with the intent to benefit the National Health and Family Planning Commission of the People’s Republic of China.  XU previously pled guilty to all six counts with which he was charged.  Yesterday’s sentence was imposed by U.S. District Judge Kenneth M. Karas in White Plains federal court. 

U.S. Attorney Geoffrey S. Berman said:  “As he previously admitted in federal court, Xu Jiaqiang stole high-tech trade secrets from a U.S. employer, intending to benefit the Chinese government.  The laws governing economic espionage and trade secrets exist, in part, to protect the sanctity of American ingenuity and property.  Xu’s prison sentence should be a red flag for anyone attempting to illegally peddle American expertize and intellectual property to foreign bidders.”

Acting Assistant Attorney General Dana J. Boente said:  “Xu, a Chinese national, is being held accountable for engaging in economic espionage against an American company.  Xu not only stole high tech trade secrets from his U.S. employer – a federal crime – he did so both for his own profit and intending to benefit the Chinese government.  Xu’s sentence clearly demonstrates that the National Security Division will not hesitate to pursue and prosecute those who steal from American businesses.  I thank the many people who worked hard to bring this result.”

According to the allegations contained in the Complaint and the Superseding Indictment filed against XU, as well as statements made in related court filings and proceedings:

From November 2010 to May 2014, XU worked as a developer for a particular U.S. company (the “Victim Company”).  As a developer, XU enjoyed access to certain proprietary software (the “Proprietary Software”), as well as that software’s underlying source code (the “Proprietary Source Code”).  The Proprietary Software is a clustered file system developed and marketed by the Victim Company in the United States and other countries.  A clustered file system facilitates faster computer performance by coordinating work among multiple servers.  The Victim Company takes significant precautions to protect the Proprietary Source Code as a trade secret.  Among other things, the Proprietary Source Code is stored behind a company firewall and can be accessed only by a small subset of the Victim Company’s employees.  Before receiving Proprietary Source Code access, Victim Company employees must first request and receive approval from a particular Victim Company official.  Victim Company employees must also agree in writing at both the outset and the conclusion of their employment that they will maintain the confidentiality of any proprietary information.  The Victim Company takes these and other precautions in part because the Proprietary Software and the Proprietary Source Code are economically valuable, which value depends in part on the Proprietary Source Code’s secrecy. 

                                                                                               

In May 2014, XU voluntarily resigned from the Victim Company.     XU subsequently communicated with one undercover law enforcement officer (“UC-1”), who posed as a financial investor aiming to start a large-data storage technology company, and another undercover law enforcement officer (“UC-2”), who posed as a project manager, working for UC-1.  In these communications, XU discussed his past experience with the Victim Company and indicated that he had experience with the Proprietary Software and the Proprietary Source Code.  On March 6, 2015, XU sent UC-1 and UC-2 a code, which XU stated was a sample of XU’s prior work with the Victim Company.  A Victim Company employee (“Employee-1”) later confirmed that the code sent by XU included proprietary Victim Company material that related to the Proprietary Source Code.

           

XU subsequently informed UC-2 that XU was willing to consider providing UC-2’s company with the Proprietary Source Code as a platform for UC-2’s company to facilitate the development of its own data storage system.  XU informed UC-2 that if UC-2 set up several computers as a small network, then XU would remotely install the Proprietary Software so that UC-1 and UC-2 could test it and confirm its functionality.

In or around early August 2015, the FBI arranged for a computer network to be set up, consistent with XU’s specifications.  Files were then remotely uploaded to the FBI-arranged computer network (the “Xu Upload”).  Thereafter, on or about August 26, 2015, XU and UC-2 confirmed that UC-2 had received the Xu Upload.  In September 2015, the FBI made the Xu Upload available to a Victim Company employee who has expertise regarding the Proprietary Software and the Proprietary Source Code (“Employee-2”).  Based on Employee-2’s analysis of technical features of the Xu Upload, it appeared to Employee-2 that the Xu Upload contained a functioning copy of the Proprietary Software.  It further appeared to Employee-2 that the Xu Upload had been built by someone with access to the Proprietary Source Code who was not working within the Victim Company or otherwise at the Victim Company’s direction.

On December 7, 2015, XU met with UC-2 at a hotel in White Plains, New York (the “Hotel”).  XU stated, in sum and substance, that XU had used the Proprietary Source Code to make software to sell to customers, that XU knew the Proprietary Source Code to be the product of decades of work on the part of the Victim Company, and that XU had used the Proprietary Source Code to build a copy of the Proprietary Software, which XU had uploaded and installed on the UC Network (i.e., the Xu Upload).  XU also indicated that XU knew the copy of the Proprietary Software that XU had installed on the UC Network contained information identifying the Proprietary Software as the Victim Company’s property, which could reveal the fact that the Proprietary Software had been built with the Proprietary Source Code without the Victim Company’s authorization.  XU told UC-2 that XU could take steps to prevent detection of the Proprietary Software’s origins – i.e., that it had been built with stolen Proprietary Source Code – including writing computer scripts that would modify the Proprietary Source Code to conceal its origins. 

Later on December 7, 2015, XU met with UC-1 and UC-2 at the Hotel.  During that meeting, XU showed UC-2 a copy of what XU represented to be the Proprietary Source Code on XU’s laptop.  XU noted to UC-2 a portion of the code that indicated it originated with the Victim Company as well as the date on which it had been copyrighted.  XU also stated that XU had previously modified the Proprietary Source Code’s command interface to conceal the fact that the Proprietary Source Code originated with the Victim Company and identified multiple specific customers to whom XU had previously provided the Proprietary Software using XU’s stolen copy of the Proprietary Source Code. 

In addition to the five-year prison term, XU, 32, formerly of Beijing, China, was ordered to pay a $100 special assessment.

Mr. Berman and Mr. Boente praised the Federal Bureau of Investigation’s outstanding investigative efforts.  He also thanked the U.S. Department of Justice’s National Security Division. 

Investment Adviser And Broker Sentenced For Securities Fraud Scheme

   Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced that CHRISTOPHER CERVINO, a/k/a “Smitty,” was sentenced to one year and one day in prison, and SHEIK F. KHAN, a/k/a “Abida Khan,” was sentenced to 53 months in prison for their roles in a securities fraud scheme involving the shares of a publicly traded company called VGTel, Inc. (“VGTL”).  CERVINO and KHAN were convicted after a three-week jury trial before U.S. District Judge Andrew L. Carter, who imposed yesterday’s sentence. 

Manhattan U.S. Attorney Geoffrey S. Berman said:  “Securities broker Christopher Cervino and investment adviser Sheik Khan created a massive web of lies to defraud investors of millions of dollars.  They manipulated the market, and their clients’ trust, to ensure they made money.  Thankfully their days of deceptive trading and investing are over, and they will spend time in prison for their crimes.”

According to the Indictment other filings in Manhattan federal court, evidence at trial, and statements made in court proceedings:

The securities fraud scheme was conceived and led by Edward Durante, a recidivist securities fraud defendant, who pled guilty in August 2016 to various crimes related to the scheme, including conspiracy, securities fraud, money laundering, and perjury.  As part of the scheme, Durante, CERVINO, KHAN, and others conspired to control and manipulate the public stock of VGTL in order to artificially inflate the stock price and trading volume so as to profit from sales of VGTL stock and to further induce investments in private shares of VGTL. 

Durante, through entities he controlled, held a majority of the publicly traded stock of VGTL.  Durante recruited CERVINO, a broker, to open brokerage accounts associated with Durante-controlled entities and investors who were clients of KHAN, an investment adviser.  Many of KHAN’s clients had no idea that KHAN and Durante had opened accounts on their behalf with CERVINO.  KHAN, along with Durante, then induced her clients to purchase VGTL stock through CERVINO – sometimes without the clients’ knowledge or permission – while Durante and CERVINO ensured that many of these purchases were matched with sales of VGTL stock by Durante-controlled accounts.  The reality of these transactions was that Durante and his co-conspirators were effectively taking both sides of a single transaction in VGTL stock in order to artificially control VGTL’s stock price.  The defendants’ efforts to artificially inflate the market for VGTL increased the stock price from approximately $.25 per share to as much as $1.90 during the course of the scheme, and dramatically inflated the trading volume, which increased the defendants’ abilities to raise private investments in VGTL and to unload Durante-controlled shares at artificially high prices at the expense of victim investors.  To compensate CERVINO for his efforts to control and manipulate the market in VGTL, Durante made at least two cash payments to CERVINO totaling $35,000, in addition to the substantial commissions CERVINO received for executing trades in VGTL.  For her part, KHAN received more than $400,000 from Durante, including more than $100,000 in payments for liquidating her clients’ investments in safe annuities so that the money could then be invested into VGTL.  In total, CERVINO purchased more than $3.5 million of VGTL shares in client accounts controlled by KHAN and/or Durante.  The VGTL shares were ultimately worthless and clients lost the entirety of their investments.

In addition to the prison term, CHRISTOPHER CERVINO, 45, was sentenced to three years of supervised release and ordered to forfeit $35,000.

In addition to the prison term, SHEIK F. KHAN, 54, was sentenced to three years of supervised release and ordered to forfeit $290,787.

Restitution for both defendants will be determined at a later date.

Mr. Berman praised the work of the Federal Bureau of Investigation and the U.S. Postal Inspection Service, and thanked the Securities and Exchange Commission for its assistance.