Owners of China-Based Company Charged With Conspiracy to Send Trade Secrets Belonging to Leading U.S.-Based Electric Vehicle Company

A complaint was unsealed today in federal court in Brooklyn charging Klaus Pflugbeil, a resident of the People’s Republic of China (the “PRC” or “China”) and Canadian national, and Yilong Shao, a Chinese national, with conspiring to send trade secrets that belonged to a leading U.S.-based electric vehicle company (“Victim Company-1”).  Pflugbeil and Shao are operators of a PRC-based business (“Business-1”) that sold technology used for the manufacture of batteries, including batteries used in electric vehicles.  The defendants built Business-1 using Victim Company-1’s sensitive and proprietary information, and even marketed their business as a replacement for Victim Company-1’s products.  Pflugbeil was arrested this morning after he sent multiple Victim Company-1 trade secrets to an undercover agent and traveled to Nassau County for a meeting with what he believed to be Long Island-based businesspeople, who in reality were undercover law enforcement agents.  Pflugbeil is scheduled to make his initial appearance today before United States Magistrate Judge Peggy Kuo.  His co-defendant Shao remains at large.

Breon Peace, United States Attorney for the Eastern District of New York, Matthew G. Olsen, Assistant Attorney General of the Justice Department’s National Security Division, and James Smith, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), announced the arrest and charge.

“As alleged, the defendants set up a company in China, blatantly stole trade secrets from an American company that are important to manufacturing electric vehicles, and which cost many millions of dollars in research and development, and sold products developed with the stolen trade secrets,” stated United States Attorney Peace.  “Rather than invest their own resources into competitive technology, the defendants looted Victim Company-1’s trade secrets for their own financial gain.  Today’s arrest demonstrates that this Office will prosecute those who engage in theft of trade secrets that places U.S. businesses at a competitive disadvantage, undermines innovation and creates a potential national security risk.”

Mr. Peace also thanked the Justice Department’s Computer Crime and Intellectual Property Section (CCIPS) for its assistance.

“The defendants stand accused of stealing valuable proprietary technology from a U.S. electric car manufacturer and using it to set up a rival business overseas,” stated Assistant Attorney General Olsen. “This blatant theft of advanced trade secrets relating to battery components and assembly blunts America’s technological edge, and the Justice Department will hold accountable those who would so try cheat our country of its economic potential and threaten our national security.”

“Klaus Pflugbeil and Yilong Shao allegedly used stolen confidential information—developed by their previous employers—to establish their own Chinese-based competitor. When American economic intelligence is stolen by foreign businesses, it not only harms the victim companies, but also threatens our financial infrastructure. The FBI will bring to justice anyone who steals our proprietary trade secrets in an effort to both safeguard the American economy and our national security,” stated FBI Assistant Director-in-Charge Smith.

Victim Company-1 is a U.S.-based leading manufacturer of battery-powered electric vehicles and battery energy systems.  In 2019, Victim Company-1 acquired a Canada-based manufacturer of automated, precision dispensing pumps and battery assembly lines (the “Canadian Manufacturer”).  Prior to its purchase by Victim Company-1, the Canadian Manufacturer sold battery assembly lines to customers who manufactured alkaline and lithium-ion batteries for consumer use.  The battery assembly lines contained or utilized a proprietary technology now owned by Victim Company-1: continuous motion battery assembly (the “Battery Assembly Trade Secret”).[1]  The proprietary technology provided a substantial competitive advantage to Victim Company-1 in the battery manufacturing process.  Victim Company-1 spent at least $13 million developing the Battery Assembly Trade Secret.

Both Pflugbeil and Shao are former employees of the Canadian Manufacturer.  The evidence reveals that, by no later than 2019, Pflugbeil and Shao planned to make use of Victim Company-1 trade secrets for their own business activities.  For example, between October and November 2019, Pflugbeil and Shao discussed “set[ting] up” a company in Canada and China that would rely on the sensitive and confidential information needed to make and sell their own battery technology.  Pflugbeil told Shao that he had “a lot of original documents” related to the technology, and sought out more “original drawings” from Victim Company-1 that they could copy for their planned business.  Shao subsequently confirmed that “we have all of original assembly drawings by PDF.”

In or about July 2020, Pflugbeil and Shao opened Business-1, which has since expanded to locations in China, Canada, Germany and Brazil.  Business‑1 makes the same precision dispensing pumps and battery assembly lines that Victim Company-1 manufactured using its proprietary technology.  Business-1 is marketed by Pflugbeil as an alternative source for the sale of products that rely upon Victim Company-1 trade secrets, publishing online advertisements that state, for example, “Are you looking for [Victim Company-1] Metering pumps and spare parts?  Look no further.” 

In operating Business-1, Pflugbeil and Shao relied upon the Battery Assembly Trade Secret.  For example, in September 2020, Pflugbeil emailed a series of drawings to a gears manufacturer in order to produce several parts, and wrote “please keep the attached information confidential.”  The attachment contained drawings belonging to Victim Company-1 related to the Battery Assembly Trade Secret.  The drawings that Pflugbeil sent were identical to Victim Company-1’s drawings, except the name of the company was changed, the date of the drawing was changed, and the drawing identifying number was written in reverse of Victim Company-1’s drawing identifying number.

On or about September 11, 2023, undercover agents attended a trade show for the packaging and processing industries (the “Trade Show”) in Las Vegas, Nevada.  The undercover agents posed as businesspeople who were interested in purchasing a battery assembly line from Business-1 to manufacture batteries at a facility on Long Island.  The undercover agents were introduced to Shao at the trade show and later to Pflugbeil via email.  Subsequently, on or about November 17, 2023, Pflugbeil sent, via email, a detailed 66-page technical documentation proposal (the “Proposal”) to an undercover agent (“UC-1”) while UC-1 was in the Eastern District of New York.  The Proposal notes, “this technical documentation package contains [Business-1] proprietary information which must be kept confidential.”  In reality, the Proposal contained Battery Assembly Trade Secret information belonging to Victim Company-1: at least half a dozen drawings Pflugbeil used in the Proposal and sent to UC-1 were, in fact, Victim Company-1’s information related to the Battery Assembly Trade Secret.

The charge in the complaint is an allegation, and the defendants are presumed innocent unless and until proven guilty.  If convicted, Pflugbeil faces up to 10 years in prison.

The government’s case is being handled by the Office’s National Security and Cybercrime Section and Long Island Criminal Division.  Assistant United States Attorneys Ellen H. Sise and Samantha Alessi are in charge of the prosecution, along with Trial Attorney Scott A. Claffee of the National Security Division’s Counterintelligence and Export Control Section, with assistance from Litigation Analyst Joseph Levin. 

Today’s actions were coordinated through the Justice and Commerce Departments’ Disruptive Technology Strike Force.  The Disruptive Technology Strike Force is an interagency law enforcement strike force co-led by the Departments of Justice and Commerce designed to target illicit actors, protect supply chains, and prevent critical technology from being acquired by authoritarian regimes and hostile nation states.

The Defendants:

KLAUS PFLUGBEIL
AGE:  58
Ningbo, China

YILONG SHAO
AGE:  47
Ningbo, China

E.D.N.Y. Docket No. 24-MJ-226