Feds: Corrupt Chinese officials profited from theft of GSK cancer research

Federal prosecutors alleged Wednesday that corrupt officials in the Chinese government financially supported and may have benefited from a scheme to steal trade secrets worth billions from a GlaxoSmithKline research facility in Montgomery County.

But lawyers representing one of the five defendants accused of pilfering information from the British-based pharmaceutical giant's Upper Merion Township location called such claims a "fantastical assertion."

The dispute - which boiled over at a detention hearing in federal court in Philadelphia - struck at the heart of debate over the Justice Department's recent checkered history in prosecuting cases of alleged theft of trade secrets involving Chinese American scientists.

Accusing the government of grossly exaggerating the stakes, defense lawyer John N. Joseph pointed to that mixed record in arguing for his client's release.

"It wouldn't be the first time the government has sat in this courtroom citing overwhelming evidence in a trade-secrets case only to withdraw the charges before trial," he said.

The Obama administration has accused Chinese spy agencies of encouraging their nation's businesses to steal trade secrets from American corporations, and made stanching that flow a priority. But several recent high-profile blunders have caused critics to label the accusations as racial hysteria reminiscent of the red scares of the 1950s.

The matter before U.S. Magistrate Judge David R. Strawbridge on Wednesday involved Tao Li, a 42-year-old biochemist and U.S. citizen, who prosecutors say plotted with his codefendants to sell and market promising cancer research stolen from GSK.

Federal authorities have alleged that Li worked with two GSK scientists - Yu Xue, a world-renowned biochemistry expert, who lives in Wayne, and Lucy Xi, 38, of Westlake Village, Calif. - to smuggle the stolen information out of the company between 2012 and 2015. The group intended to use the information to launch its own competitor companies, based in the Chinese cities of Shanghai and Nanjing and operating under the name Renopharma, prosecutors said.

Although the indictment alleges that unnamed Chinese officials accepted bribes from Li and his colleagues, and held "under the table" stock options in the burgeoning company, the defendants were not charged with economic espionage, which requires proof that government officials were directly involved in the crime. Instead, they face charges of conspiracy, wire fraud, money laundering, and theft of trade secrets.

In court filings so far, prosecutors have only pointed to emails and records from Li and Xue to substantiate their claim of government involvement.

In one August 2012 message cited in the indictment, Xue identified two key Chinese officials whom she felt confident she could persuade to invest in Renopharma through a "special government fund," and laid out plans to give them "expensive gifts" to cement their support.

Renopharma's own financial records from March 2014 list the equivalent of about $300,000 the company had received from various government-backed funds in China that year.

Prosecutors on Wednesday urged the judge to keep Li in federal detention until his trial, arguing that the same government officials who have supported his company in the past have an interest in helping him escape trial in the United States.

"Certain government officials in China, who . . . are apparently corrupt, have been active supporters of Renopharma for many years," Assistant U.S. Attorney Robert Livermore said in filings in Li's case this week. "These supporters would be motivated for numerous reasons to assist the defendant in fleeing . . . motivated to protect themselves, protect the defendant, and protect and further their investment in the stolen technology."

But Joseph, Li's lawyer, argued Wednesday that such claims were little more than hyperbole, and compared the Chinese government money that Renopharma had received to economic development grants routinely handed out by state and local governments to private businesses in the U.S.

"The government's fantastical notions that the Chinese government has some interest in whisking him back to China to protect their own interests has no basis in fact," he said.

Strawbridge ultimately agreed, allowing for Li's release on a $75,000 bond.

Joseph likened the allegations in Li's case to several recent high-profile prosecutions involving Chinese American scientists that fell apart, including a case against Xiaoxing Xi, the former chair of Temple University's physics department.

Federal authorities arrested Xi in May on accusations that he stole sensitive U.S. technology to help China emerge as a global leader in his field of superconductivity, only to withdraw the charges four months later after his lawyer pointed out that prosecutors had "fundamentally misunderstood" the technology Xi was accused of stealing and that it was not a protected trade secret.

In the 10 months preceding that decision, Justice Department lawyers also withdrew cases against four other Chinese American scientists across the country accused of passing along protected information, including allegations against two former senior biologists at GSK competitor Eli Lilly & Co.

Still, it is clear from government court filings that authorities feel confident that the case against Li and his codefendants will not end in another public embarrassment.

"Through a series of email search warrants, the FBI caught Yu Xue, Tao Li and the other coconspirators red-handed," Livermore wrote in a recent filing. "The evidence in this case is overwhelming."

The indictment against them contains long passages quoting the group's email exchanges, including several in which Li and Xue worried what would happen should they get caught. When news of the trade secrets case against the Lilly scientists broke in 2013, Xue sent a brief email to Li.

"So scary," she wrote, according to the indictment. "Please do not send any doc containing GSK data out" to others.

jroebuck@phillynews.com

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