Two indicted over fake circuits sold for US defense

Prosecutors say no fakes made it into weapons systems

*Authorities seize Ferrari, Bentley, bank accounts

* Some 60,000 circuits imported from China, Hong Kong

* Authorities seize Ferrari, Bentley, bank accounts

By Jeremy Pelofsky
WASHINGTON, Sept 14 (Reuters) - Two Florida residents have been indicted for a scheme selling counterfeit integrated circuits imported from China to the U.S. Navy and defense contractors, U.S. prosecutors said on Tuesday.

Shannon Wren, 42, and Stephanie McCloskey, 38, were arrested in Florida earlier on Tuesday on the 10-count indictment which included charges of conspiracy, trafficking in counterfeit goods and mail fraud.

Through Wren's company, VisionTech Components, they were accused of selling some $15.9 million worth of counterfeit integrated circuits, which are used to control the flow of electricity in devices like consumer electronics and military hardware.

From late 2006 until last month, they were accused of importing nearly 60,000 integrated circuits from China and Hong Kong that had counterfeit marks, and selling some of them to defense contractors and the U.S. military.

"Product counterfeiting, particularly of the sophisticated kind of equipment used by our armed forces, puts lives and property at risk," U.S. Attorney Ronald Machen said in a statement.

The indictment did not say that any of the counterfeit circuits actually were used in weapons systems, according to Machen's office. Wren owned the company VisionTech and McCloskey was in charge of administration there.

McCloskey was released on a $25,000 bond and restricted from certain travel while a judge ordered Wren held pending receipt of additional information, according to prosecutors. It was not immediately clear if they had retained lawyers.

The counterfeit circuits were passed off as the real thing from manufacturers including Intel Corp (INTC.O), National Semiconductor Corp (NSM.N) and Texas Instruments (TXN.N), according to U.S. prosecutors.

Some of the counterfeit circuits were purchased for a joint project by a unit of BAE Systems Plc (BAES.L) and the Naval Air Warfare Center Aircraft Division to produce equipment that identified friendly and enemy aircraft.

Other circuits were sold for U.S. defense projects by Northrop Grumman Corp (NOC.N) and Raytheon (RTN.N), among others, according to prosecutors.

Additionally, Wren's firm sold 13 legitimate circuits and 1,987 fake circuits to Alstom (ALSO.PA) for use in controllers in high-speed trains.

Fake circuits can cause various system failures or contain malicious code that could disable the hardware or allow hacking attacks, Machen's office said.

Authorities also seized goods and money that prosecutors said were proceeds of the alleged illegal conduct, including a Ferrari Spider, a Bentley Arnage, and funds in several bank accounts. (Reporting by Jeremy Pelofsky; Editing by Eric Walsh)