A New Jersey man pleaded guilty today in the Western District of Oklahoma to participating in a massive international scheme to make millions of dollars by selling pirated business telephone system software licenses. The entire scheme allegedly resulted in the sale of software licenses with a retail value of over $88 million.

According to court documents, Jason M. Hines, aka Joe Brown, aka Chad Johnson, aka Justin Albaum, 43, of Caldwell, conspired with co-defendants Brad Pearce and Dusti Pearce – who jointly used the identity “Terri Jenkins” – to commit wire fraud. The scheme involved generating and then selling unauthorized Avaya Direct International (ADI) software licenses, which were used to unlock features of a popular telephone system used by thousands of companies around the globe. The ADI software licensing system has since been decommissioned.

Avaya Holdings Corporation, a multinational business communications company headquartered in California, sold a product called IP Office, a telephone system used by many midsize and small businesses in the United States and abroad. To enable additional functionality of IP Office, such as voicemail or telephones, customers had to purchase software licenses – which Avaya generated – from an authorized Avaya distributor or reseller. Avaya used software license keys to control access to Avaya’s copyright-protected software and to ensure that only customers who paid for the software could use it. In addition, Avaya required that each software license on an IP Office system be associated with the system’s Avaya Secure Digital (SD) card – a small flash memory card with a unique serial number that plugged into the IP Office manager computer – which the end user had to keep in its possession to use the licenses.

Hines operated Direct Business Services International (DBSI), formerly known as Dedicated Business Systems International, a New Jersey-based business communications systems provider and a de-authorized Avaya reseller. He bought ADI software license keys from Brad and Dusti Pearce under his own name and also using an alias, Joe Brown, and then sold them to resellers and end users around the globe. Brad Pearce, a long-time customer service employee at Avaya, allegedly used his system administrator privileges to generate those keys without authorization, creating tens of thousands of them that he sold to Hines and other customers. Brad Pearce’s wife, Dusti Pearce, is alleged to have handled accounting for the illegal business. Hines was by far the Pearces’ largest customer, buying over 55% of the stolen licenses, and significantly influenced how the scheme operated. In fact, Hines was one of the biggest users of the ADI license system in the world. As a result, Hines reaped millions of dollars from the fraud.

Hines pleaded guilty to conspiracy to commit wire fraud. As part of the plea agreement, the United States has agreed not to advocate for more than five years in prison. The court has not yet set a sentencing date. Pursuant to the plea agreement, Hines must forfeit a money judgment of at least $2 million as well as make full restitution to his victims. A federal district court judge will determine any sentence after consideration of the U.S. Sentencing Guidelines and other statutory factors.

Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division, U.S. Attorney Robert J. Troester for the Western District of Oklahoma, and Special Agent in Charge Edward J. Gray of the FBI Oklahoma City Field Office made the announcement.

The FBI is investigating the case.

Senior Counsel Matthew A. Lamberti of the Criminal Division’s Computer Crime and Intellectual Property Section and Assistant U.S. Attorneys Julia E. Barry and William Farrior for the Western District of Oklahoma are prosecuting the case.

Kevin Chao, a former executive at a technology company with offices in San Jose, Calif., appeared on charges he engaged in a years-long scheme to defraud his employer by directing millions of dollars of business to entities he controlled and by diverting more than $2 million in software license fees to benefit himself and co-conspirators, announced United States Attorney Ismail J. Ramsey and Federal Bureau of Investigation, Special Agent in Charge Robert K. Tripp. Richard Sze and Suryanarayana Murthy Bobba, both former employees of the same technology company as Chao, face related charges. Chao made his initial appearance before the Honorable Nathanael M. Cousins, United States Magistrate Judge.

Chao, 64, of Mountain View, was charged in an Information filed July 19, 2023. Chao was a former Global Business Director at a technology company identified in the Information as Company-1. According to the Information, Chao had a duty of loyalty to, and a duty to disclose outside business to, Company-1. Instead, the Information alleges, Chao engaged in a scheme in which he directed millions of dollars in business to entities in which he had an interest but kept his control and financial interest secret from Company-1.

There were various aspects of the alleged scheme. First, the Information alleges Chao defrauded his employer by working with other company employees, Sze, 56, of Saratoga, Calif. and Bobba, 55, of Los Altos, Calif., to direct software development service contracts to Zillsoft, a company they controlled. Chao, Sze, and Bobba did not inform Company-1 that they controlled Zillsoft. Chao allegedly directed millions of dollars in business to Zillsoft, then split the profits with Sze and Bobba. The Information further alleges Chao continued the scheme by arranging for the sale of Zillsoft to a third entity that also performed work for Company-1, and the co-conspirators again secretly profited from Company-1’s business with that entity.

According to the Information, Chao and Sze formed another entity, SPSoft China, also to steer contracts and payments to themselves. Chao profited about $5.4 million from this arrangement. He concealed his control and interest in the company from Company-1 to continue to direct millions of dollars in business to the entity, according to the allegations.

In another aspect of the scheme, Chao and Bobba arranged for Company-1 to obtain a license to a software program for Company-1, and then secretly arranged to divert more than $2 million to themselves without disclosing the diversion to Company-1.

Chao originally was arrested on October 29, 2021, on a criminal complaint. Chao is charged with one count of wire fraud, in violation of 18 U.S.C. § 1343. After today’s appearance, Magistrate Judge Cousins released Chao on bond. Chao’s next appearance is scheduled for October 17, 2023, before Hon. Beth Labson Freeman, U.S. District Judge.

Sze was also previously arrested on a criminal complaint unsealed on October 29, 2021. Sze is now charged by an Information filed on April 24, 2023. Sze is charged with one count of conspiracy, in violation of 18 U.S.C. § 317, and he made his initial appearance on the Information on May 9, 2023. Sze was previously released pending further proceedings. Sze is set for a change of plea hearing before Judge Freeman on October 3, 2023.

Bobba was charged by an Information filed on April 24, 2023, with one count of conspiracy, in violation of 18 U.S.C. § 317. He made his initial appearance on the Information on May 16, 2023, and was released on bond. Bobba is set for a status conference before Judge Freeman on October 10, 2023.

The Informations and criminal complaints contain mere allegations that crimes have been committed and all defendants are presumed innocent until proven guilty beyond a reasonable doubt. If convicted, Chao faces a maximum sentence of 20 years imprisonment, and defendants Bobba and Sze face a maximum sentence of 5 years imprisonment. Each defendant faces a fine of $250,000, plus restitution if appropriate, for each violation. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

The case is being prosecuted by the Corporate and Securities Fraud Section of the U.S. Attorney’s Office for the Northern District of California and forfeiture is being handled by the Office’s Asset Forfeiture Unit. Assistant U.S. Attorneys Chris Kaltsas and Sailaja M. Paidipaty are prosecuting the case with the assistance of Elizabeth Kim. The prosecution is the result of an investigation by the Federal Bureau of Investigation.