In an FBI undercover investigation that targeted the software writers and manufacturers behind equipment that allows the theft of satellite television signals, 17 people have been charged in Los Angeles with causing millions of dollars of losses to companies that have spent tens of millions of dollars creating some of the world’s most sophisticated conditional access technology.

Six of the charged defendants are accused of violating the criminal anti-decryption provisions of the Digital Millennium Copyright Act. These charges represent the first time the DMCA has been used in this district and only the second time in the nation that a grand jury has issued an indictment under this statute.

After five of the defendants were taken into custody this morning, federal authorities announced that the year-long investigation dubbed “Operation Decrypt” has led to charges against high-level computer hackers who work together in underground, online communities to develop technology to steal satellite programming. The announcement was made at a press conference this morning by United States Attorney Debra W. Yang and FBI Assistant Director Ronald Iden.

“This case demonstrates our commitment to identifying and prosecuting sophisticated computer hackers who steal the intellectual property of others for their own economic benefit,” said United States Attorney Yang. “No matter how sophisticated the criminals are, we will uncover the devices they create and the strategies they use to steal the lifeblood of the business community.”

FBI Assistant Director Iden stated: “Cybercrime is one of the top priorities of the FBI. We will continue to devote considerable resources to remain a potent deterrent in this changing world.”

The victims of the hackers and hardware distributors are satellite programming providers such as DirecTV and DISH Network, companies that lose millions of dollars every year from satellite signal piracy. Additionally, members of the Motion Picture Association of America lose millions of dollars every year in unpaid royalties when satellite programming is stolen.

In an illustration of the scope of the problem, one defendant already has pleaded guilty and admitted that he was responsible for losses of nearly $15 million. Another nine defendants have agreed to plead guilty to charges based on conduct that also caused significant losses. Six of the remaining defendants have been named in four indictments that were returned by a federal grand jury in Los Angeles last month and unsealed this morning. One additional defendant has been charged in a criminal complaint.

Operation Decrypt shed light on the normally hidden world of computer hackers who use secret online chat rooms to exchange data and techniques to circumvent the sophisticated security procedures developed by DirecTV and DISH Network. Satellite entertainment companies have developed expensive “conditional access” technologies that are designed to restrict access to their product only to paying customers. DirecTV, for example, uses encryption and conditional access technology on a “smart card,” the latest version of which cost more than $25 million to develop. Smart cards, which are being used more and more in everyday commerce, contain microprocessors that have been programmed to function with a satellite dish and an integrated receiver. The defendants charged today were involved in developing software and hardware to defeat the conditional access technology implemented by the satellite companies.

In October 2002, FBI agents in seven states executed search warrants at the homes of many of the targets. Agents seized numerous computers and illegal decryption devices as part of the investigation.

The charged defendants include software writers, hardware manufacturers and hardware distributors who have made thousands of decryption devices and have developed the essential software needed to hack the conditional access technology on the smart cards. The defendants can be grouped into three categories.

SOFTWARE AND HARDWARE DEVELOPERS

• Randyl Walter, 43, of West Los Angeles, who has pleaded guilty to manufacturing satellite signal decryption devices and has admitted to causing $14,862,960.00 in losses to the satellite companies.

• Chad Fontenot, 26, of Richmond, Kentucky, who was arrested this morning on charges of conspiracy, satellite signal theft and violating the DMCA for designing and manufacturing hardware devices. Fontenot was known by his online screen names of "FreeTV" and "FreeTV2."

SOFTWARE DEVELOPERS

• Jason Hughes, 19, of Mocksville, North Carolina, who has agreed to plead guilty to violating the DMCA for developing and distributing software designed to circumvent smart cards for DirecTV. Hughes has admitted to selling his software programs to individuals in Canada for $50,000.

• Edward Vanderziel, 35, of Ontario, California, who was indicted on charges of conspiracy, manufacturing signal theft devices and violating the DMCA.

• Daniel Wilson, 33, of Houston, who has agreed to plead guilty to manufacturing satellite signal theft devices. Wilson developed freeware that was widely distributed on the Internet that was used to circumvent conditional access technologies.

• Stephen Thornton, 36, of Redondo Beach, California, 36, who has agreed to plead guilty to developing satellite signal theft devices by writing software to circumvent smart card technology.

• Christopher Humbert, 20, of Terre Haute, Indiana, who has agreed to plead guilty to creating software code used to circumvent smart card technology.

HARDWARE DEVELOPERS

• Gary Bumgardner, 46, of Kernersville, North Carolina, who has agreed to plead guilty to manufacturing and distributing satellite signal theft devices including hacked access cards. Bumgardner has stipulated to a loss amount of $68,732.16.

• Michael Whitehead, 37, of Boca Raton, Florida, who was indicted for conspiracy, manufacturing satellite signal theft devices and violating the DMCA for his nationwide distribution of devices to circumvent the conditional access technologies in smart cards.

• Thomas Sprink, 41, of Cocoa, Florida, who has agreed to plead guilty for selling hardware devices.

• Peter DeForest, 30, of Seadrift, Texas, who has been indicted on charges of manufacturing satellite signal theft devices and charges under the DMCA for manufacturing “unloopers” used to circumvent the smart card technology.

• Dennis Megarry, 39, of Ostrander, Ohio, who was arrested this morning based on a criminal complaint filed against him for distributing illegal hardware devices.

• Robert Walton, 37, of Temple City, California, who was arrested this morning on charges of conspiracy and manufacturing satellite signal devices.

• Linh Ly, 38, of Rosemead, California, who has agreed to plead guilty to violating the DMCA and distributing decryption hardware that caused a loss of $561,507.48.

• Richard Seamans, 52, of Chino Hills, California, who was indicted on charges of violating the DMCA and distributing decryption devices;.

• Thomas Emerick, 33, of Ontario, California, who has pleaded guilty to distributing decryption devices and reprogramming smart cards and has admitted to causing $70,000 in loss to the satellite companies.

• Joseph Bolosky, 30, of Panorama City, California, who has agreed to plead guilty to charges of manufacturing decryption devices and has stipulated to a loss amount of $245,472.00.

The cases announced today involve one or more of three federal charges: the Digital Millennium Copyright Act, 17 U.S.C. §§ 1201(a)(2), 1204; manufacturing a device for the purpose of stealing satellite signals, 47 U.S.C. § 605(e)(4); and conspiracy, 18 U.S.C. § 371. All three counts carry a maximum possible sentence of five years in federal prison. The Title 17 and Title 47 counts carry a potential $500,000 fine, while the conspiracy count carries a maximum fine of $250,000.

Operation Decrypt is an ongoing investigation being handled by the Cyber Crimes Squad in the Los Angeles Field Office of the Federal Bureau of Investigation. The investigation is part of an ongoing effort to fight cybercrime under the Attorney General's Computer Hacking and Intellectual Property program.

CONTACT: Assistant United States Attorney James Spertus
Computer Crimes Section
(213) 894-5872

Release No. 03-026

• More information on: Whitehead's Conviction
• More information on: Walter's Plea
• More information on: Operation Decrypt Defendants
• More information on: Intellectual Property Crime Cases
• More information on: Protecting Intellectual Property Rights

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