ArentFox Schiff White Collar Team Secures Dismissal of Fraud, Export-Control, and False Statement Charges

Dr. Tao was represented by AFS Government Enforcement & White Collar Partners Peter R. Zeidenberg and Michael F. Dearington and Associate Apeksha Vora. The sentencing on October 2 marked the successful end to a three-year battle between Dr. Tao and the US Department of Justice, which eventually resulted in the district court dismissing the 10 counts of wire fraud and the government voluntarily dismissing the export and false statement charges.

Dr. Tao had been a highly accomplished research scientist at SouthWest Research Institute (SwRI), a nonprofit research laboratory in San Antonio, for 25 years. The government alleged that Dr. Tao defrauded SwRI by operating an undisclosed business out of his home that competed with SwRI. SwRI's terms of employment prohibited employees from having outside businesses without approval.

In addition, the government alleged that Dr. Tao had export-controlled documents on his work laptop that he took with him when he traveled to China on a business trip, in violation of the Arms Export Control Act, the International Traffic in Arms Regulations, the Export Control Reform Act, and the Export Administration Regulations.

The government also alleged that in the course of a Federal Bureau of Investigation interview, Dr. Tao made false statements about his knowledge of the export-related documents.

Finally, the government charged Dr. Tao with five counts of income tax reporting violations for his failure to report approximately $2.4 million in income that his company earned over the previous 10 years.

The AFS team filed a motion to dismiss the fraud counts, arguing that the indictment alleged what amounted to an honest services fraud based on a mere conflict of interest, which is invalid under the US Supreme Court's decision in Skilling v. United States. Although that motion was initially denied by the district court, the AFS team persisted by filing a motion for bill of particulars, which the court granted, requiring the government to describe the specific property SwRI had been defrauded of by Dr. Tao. The government's response was, essentially, salary and office supplies.

With the government's fraud theory further fleshed out, the AFS team filed a renewed motion to dismiss and argued that salary and office supplies - which were made available to all SwRI employees - were not "money or property" as defined by the wire fraud statute and case law. This time, the district court agreed, and dismissed all of the fraud counts.

The AFS team then filed a motion to sever the export charges from the tax counts, arguing that the two sets of offenses were wholly unrelated schemes with no overlapping evidence or witnesses. The district court granted the motion and set trial for both sets of charges, with the first trial scheduled for August.

Several months prior to the trials, the team obtained a meeting with the government and exposed the weaknesses in the government's export-control charges against Dr. Tao, resulting in the government's agreement to drop all export-related charges as part of Dr. Tao's plea to two of the tax-related counts. Dr. Tao pled guilty in September.

Dr. Tao was sentenced on October 2 to five years of probation, with two years of home confinement. He will also be required to pay restitution.

AFS's Government Enforcement & White Collar team offers critical and timely advice, deals with the toughest financial regulators and enforcement agencies in the world, solves the most complex cross-border problems, conducts sensitive internal investigations, provides compliance and ethics training, and guides clients through complex governmental audits and investigations.

• Peter R. Zeidenberg

  Partner
• Michael F. Dearington

  Partner
• Apeksha Vora

  Associate