Chinese National Admits Leading Role in Million-Dollar Fraud Against Former Employer

NEWARK - Three Chinese nationals pleaded guilty today, admitting that they bilked their former employer in a $1 million international fraud scheme, U.S. Attorney Christopher J. Christie announced.

The mastermind of the scheme, Zhen Zhang, 35, entered a guilty plea today before U.S. District Judge Dickinson R. Debevoise. In his plea, Zhang admitted conduct including pushing sales through straw buyers and demanding bribe payments, as well as creating front companies and falsifying corporate records to hide the scheme to defraud his employer, Vectron International.

Two co-conspirators, Shiyi Zhang, 42, (no relation to Zhen Zhang), and Zhuosen Tan, 31, entered guilty pleas before Judge Debevoise on Dec. 28, 2005, and Feb. 27, 2006, respectively, admitting their roles in the conspiracy.

All three defendants worked as sales representatives for Vectron International, a multi-national corporation based in Hudson, New Hampshire. Zhen Zhang, Shiyi Zhang and Zhuosen Tan were based in the Chinese cities of Shanghai, Beijing and Shenzhen, respectively.

Judge Debevoise scheduled sentencing for July 17 for Zhen Zhang. Shiyi Zhang is scheduled for sentencing on April 10 and Tan for May 12. Zhen Zhang and Shiyi Zhang remain incarcerated and Tan was released on bail at the time of his plea.

Vectron International is a world leader in the design, manufacture and marketing of high-technology products used to generate radio signals and control radio frequencies, which are used in various commercial, military and space applications, according to Assistant U.S. Attorney Judith H. Germano. Vectron International has operating facilities and sales offices in North America, Europe and Asia

The defendants were arrested on June 6, 2005 in the United States. Zhen Zhang had a work visa allowing him to enter the United States and was approved in December 2004 to become a legal permanent resident. The other two defendants were admitted to the United States for business purposes.

The Information to which each defendant pled guilty details transactions the defendants entered into with individuals in New Jersey, China, Pakistan and elsewhere. The defendants are charged with using straw buyers in these transactions - including existing companies in the U.S., as well as front companies that the defendants established and operated in China - to conceal the true value and ultimate end-user of the products from their employer. This enabled the defendants to pocket a portion of the proceeds from sales transactions for their own financial benefit, defrauding their employer out of as much as $1 million.

The defendants are also charged with fabricating purchase orders and end-user certifications to conceal their scheme. (End-user certifications - which set forth the ultimate user and use of a product - are often required to determine whether a license from the U.S. government is required before certain products can be exported from the United States.)

The Information details bribe payments that defendant Zhen Zhang demanded in exchange for providing favored treatment to customers. That favored treatment included offering bribe-paying customers lower prices and faster service, while simultaneously delaying or outright declining bids from non-bribe-paying customers. Pursuant to the scheme, the defendants generated thousands of electronic communications, including emails using their employer's U.S.-based computer server.

Vectron International cooperated in the investigation of the three employees immediately upon learning of the scheme from federal authorities.

Defendant Zhen Zhang pleaded guilty to wire fraud, which carries a maximum penalty of 20 years in federal prison and fines of up to $2 million (twice the gross gain to defendants or loss to the victim). Defendant Zhen Zhang also pleaded guilty to conspiracy to commit wire fraud, which carries a maximum penalty of five years in federal prison and the same potential fines. Defendants Shiyi Zhang and Zhuosen Tan pleaded guilty to conspiracy to commit wire fraud.

In determining an actual sentence, Judge Debevoise will consult the advisory U.S. Sentencing Guidelines, which provide appropriate sentencing ranges that take into account the severity and characteristics of the offense, the defendant's criminal history, if any, and other factors. The judge, however, is not bound by those guidelines in determining a sentence.

Parole has been abolished in the federal system. Defendants who are given custodial terms must serve nearly all that time.

Christie credited Special Agents of the FBI, under the direction of Special Agent in Charge Leslie Wiser, Jr.; the Department of Homeland Security, Immigration and Customs Enforcement (ICE), under the direction of Special Agent in Charge Kyle Hutchins, and the Department of Commerce, under the direction of Special Agent in Charge Sidney M. Simon.

The Government is represented by Assistant U.S. Attorney Judith H. Germano of the U.S. Attorney's Office in Newark.