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Silicon Valley Shakedown 

A con man feeds on fear and paranoia in the software business

Wednesday, Jan 12 2000
On Oct. 28, 1998, a middle-aged man named Lawrence Jou walked into the Raley's Superstore on Paseo Padre Parkway in Fremont, disappearing into the catacombs of food and household wares that fill the mammoth store to its desert-pink stucco walls.

A bit nervous, Jou made his way from the automatic sliding doors, down aisles decorated for Halloween, toward the rear of the store. At the back wall, Jou turned into a small hallway separating prescription drugs from dental hygiene, and entered the men's bathroom.

There, Jou gave an envelope containing $25,000 in cash to a man he knew only as "Alan." Jou asked if there would be any more trouble. Alan said their business was settled. Jou left the store as anonymously as he'd arrived.

A Chinese immigrant with a moderately prosperous computer parts business, Jou thought he was making a simple payoff. A rumor had been circulating through Jou's circles that federal agents were compiling a list of targets in the computer business to investigate for possible violations of software licensing laws. Jou's cash outlay would supposedly keep him out of trouble. It was the price of doing business in Silicon Valley, he figured.

But in truth, Jou was on his way to being conned out of $90,000 in a scam apparently aimed at immigrants in computer-related businesses who may be naive to the ways of the United States Justice Department.

With a handful of business contacts and the promise of prosperity, Lawrence Jou moved his family from their native Taiwan to Silicon Valley a decade ago. He settled in Fremont, a blue-collar manufacturing hub along the Interstate 880 corridor, where a great portion of the computer industry is tucked into high-tech office parks and small warehouses with storefronts.

Jou built a small business called Powtex International Corp., specializing in the little cooling fans that keep the guts of personal computers from burning up. Early on, Jou also dabbled in other parts and software, things he could buy wholesale and resell to manufacturers who built and sold personal computers.

Two years ago, Jou decided to restructure his company and concentrate exclusively on the cooling fan business. Now called Ampower International, the company manufactures the fans in Taiwan and ships them to the United States for sale.

By all accounts, Jou is a classic success story: He owns his own home, and a little piece of the Silicon Valley economy. Most of Jou's friends and acquaintances also are in the business of buying, selling, or making something to do with computers.

All was going well until the fall of 1998, when Jou heard some unnerving news from a business acquaintance. The word was that Microsoft and the FBI had formed a "task force" to hunt down and prosecute companies that were illegally selling the industry giant's software.

Supposedly, federal agents were compiling a list of those who might have run afoul of Microsoft's licensing agreements, and there would be hell to pay for those whose names wound up on it.

But there was a way out. Jou's friend told him about a man named "Alan" who had the connections necessary to keep people out of trouble. Alan, the friend said, used to be in the business of selling illegal goods himself, but had since turned around, and was now working as a liaison between Microsoft and the federal government.

Most important, the friend told Jou, "everyone" was settling with Alan. For a fee, Alan could keep people off the dreaded list. But those who didn't pay Alan would be harassed by the FBI, and have their business files turned over to the Internal Revenue Service, which would hound them forever.

Jou knew he did not want to end up on the supposed list.

About the same time Lawrence Jou moved to Silicon Valley, a young man named Degar Yen entered Los Angeles County's court system. Yen, who is now 34, was arrested a handful of times for petty crimes in the early 1990s, like driving with a suspended license and then failing to show up for court, until he finally landed in jail with increasing frequency.

Yen moved around the neighborhoods of Alhambra and Monterey Park in Southern California before heading north. Meanwhile, his criminal résumé grew to include things like concealing stolen property. It's unclear how or why Yen came to the Bay Area, but by 1998 he was living in San Francisco, according to the FBI.

And, he obviously had a plan.

Using the name "Alan," Yen managed to spread his story through a small network of immigrant-owned businesses that sell computer accessories and software. Yen cast himself as a go-to guy, someone who could funnel payments to federal investigators to keep them away from certain businesses.

No one seems to know how many people Yen talked to, or how many fell for his line.

But parts of Yen's story rang true. Microsoft and the FBI did regularly beat the bushes for software pirates all over Silicon Valley, and for good reason. Software piracy costs manufacturers more than $11 billion a year, according to the Software Business Alliance, a trade organization of software manufacturers that includes Microsoft.

Software brokers and middlemen, who sell down the software food chain from manufacturer to consumer, operate in a world where illegal products are nearly as prevalent as the real thing. More than half of the software put on systems built by small retailers (often called "white box" sellers) is counterfeit or pirated. Typically, a system builder will use one copy of a popular program, like Microsoft Works, to load several machines, which is illegal. A reseller might also load or sell counterfeit software, or software that's been "unbundled" from an original package sold at a discount with specific hardware or given away to schools or libraries, or some other special category of consumer.

From there, it only gets more complicated. Counterfeiters are masters of their craft, and go so far as to seal counterfeit software inside genuine packaging, and other equally clever tricks.

About The Author

Lisa Davis


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