Sometimes it's easy to forget just how simple it is to set up a business that can traffic in counterfeit components. An article in a Boston-area newspaper provides a great lesson in how a small operation has the potential to do big damage.
Yesterday, in Methuen, Mass., local and federal agents raided a private residence and carried out boxes of material to a police van, according to the Eagle-Tribune. The residence was also the headquarters of Epic International Electronics Inc., an independent distributor of electronics components. According the the Eagle-Tribune, the principals of Epic are Peter Picone, who serves as president and director; and Lisa Picone, who serves as treasurer and secretary. There is no mention of any charges or arrests that have been made in conjunction with the search. Officials said the raid was part of an ongoing investigation.
It's significant to note that both the US Department of Defense Criminal Investigative Service (DCIS) and the Naval Criminal Investigative Service (NCIS) took part in the raid. The sale of counterfeit components to the US military has received a lot of attention lately and has spurred a recent mandate called Combating Military Counterfeits Act of 2011.
The fact that the US government is so involved in the effort indicates the magnitude of the problem. Yet, component suppliers, authorized distributors, and even buyers point out that many of the firms that traffic in suspect components are small operations that spring up and disappear within days. According to the Eagle-Tribune, the Picones formed Epic International Electronics in August 2009 and previously had served as directors of a company called Tytronix Inc., which was founded in 2005.
US distributors that are doing business in Asia say that small trading companies are among the most populous form of resellers in the region. The main difference between the trader model and authorized distribution is the issue of franchises, which authorize distributors to represent component brands. Most component makers will not guarantee the performance or authenticity of their products unless they are sold by an authorized distributor.
But the fact is, it takes very little capital to set up a distribution operation. For example, catalogue orders are frequently so small that purchases can be made by credit card. In such a case, the fraudulent buyer orders and receives components; swaps bad parts (either counterfeits or devices pulled from scrapped circuit boards) out for good; and sends the bogus parts back to the distributor as a return. By the time the distributor inspects the returned order for authenticity, the buyer could be gone. That buyer, in turn, can resell the good parts at a huge profit.
Traders aren't a problem that's unique to Asia. The Epic situation is a very real reminder that counterfeiters can literally exist right in our own backyard.