DoJ charges four with fraudulently selling startup to Qualcomm for $150m

Qualcomm was apparently tricked into spending $150 million to buy a startup, unaware the same startup was secretly created by a company VP hoping to defraud the chip vendor.

The allegations came to light earlier this week when federal investigators arrested(Opens in a new window) two former Qualcomm vice presidents for pulling off the scheme.

In 2015, Qualcomm spent $150 million to buy a startup called Abreezio, according to the Justice Department. However, the chip vendor did so unaware that Abreezio was actually created with the help of ex-Qualcomm VP of R&D Karim Arabi, who left the company a year later.

During the acquisition talks, Abreezio claimed its microchip technology came from inventions made by a Canadian graduate student named Sheida Alan, according to an unsealed indictment(Opens in a new window). However, that graduate student is Arabi’s younger sister.

In reality, Arabi was “intimately involved in Abreezio’s formation, development, and marketing,” the Justice Department said. This included filing the provisional patents that Abreezio’s technology was based on, attending key meetings, and even picking out the startup’s name.

Arabi likely concealed his ties to Abreezio because under his employment agreement Qualcomm actually owned the rights to any inventions he made during his tenure at the company. “By hiding Karim’s participation in Abreezio, the defendants were able to pitch the new company as ‘an angel-funded Silicon Valley-based design IP start-up’ entitled to a hefty fee for its valuable technology, while disguising the victim company’s own legal rights to the very same technology,” the Justice Department added.

Another former Qualcomm VP of Engineering, Ali Akbar Shokouhi, who left the company in 2014, also participated in the scheme. Shokouhi allegedly helped fund Abreezio’s development through three different entities. But his ties to the startup were never fully disclosed to Qualcomm during the acquisition talks because it would have triggered “conflict of interest issues” and derailed the sale.

When the acquisition was completed, Arabi’s younger sister ended up receiving $92 million. Another $24 million went to Shokouhi’s companies, while $10 million went to Abreezio CEO Sanjiv Tanej. Allegedly, the three then laundered the funds through foreign real-estate purchases and interest-free loans.

Arabi, Shokouhi, and Taneja now face up to 20 years in prison and forfeiture of all property acquired from their corporate fraud scheme. Arabi’s sister, Sheida Alan, has also been charged with conspiracy to commit fraud. She was arrested in Canada and the Justice Department plans to extradite her to the US to face trial.

In a statement, Qualcomm said: “Protecting intellectual property is a cornerstone of innovation. We thank the US Department of Justice for its work in this case.” PCMag