SEC Aide Forced to Quit After Leak to Chinese: FBI Kept in the Dark in Espionage - Interesting News

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SEC Aide Forced to Quit After Leak to Chinese: FBI Kept in the Dark

November 11, 2002
By Bill Gertz, THE WASHINGTON TIMES

An employee of the Securities and Exchange Commission was forced to resign after it was discovered she had sent sensitive data on American computer companies to China in what U.S. officials say may be a case of economic espionage, The Washington Times has learned.

Mylene Chan, a computer and online-service analyst with the SEC for 10 months, left the commission in July after co-workers discovered she had compromised sensitive information by sending it to Shanghai, said U.S. government officials close to the case.

"She was clearly expropriating things from the commission that weren't hers — things that were not public information and that would cause competitive harm to the companies involved," one official close to the case said.

The case was covered up by the SEC and never reported to the FBI as a case of economic espionage, the officials said.

"We have not seen anything on this," an FBI official said.

Numerous U.S. companies whose proprietary information was handled by Miss Chan also were never informed that their information may have been compromised, the officials said.

Miss Chan stated in an e-mail to The Times that she was not dismissed but resigned before the end of the one-year probationary period of her employment at the SEC.

"Part of my responsibilities at the SEC was to work with representatives of the China and [Hong Kong] securities commission and to assist to educate them about how the SEC functions and, in the course of that, I provided a small number of SEC materials mistakenly, all of which were retrieved as soon as I learned of the mistake," Miss Chan stated.
Miss Chan also said, "I did not send CTRs to China."

Within the commission, a CTR is a confidential-treatment request, secret reports provided by U.S. companies to SEC that contain proprietary and other sensitive information that companies do not want disclosed to the public or to competitors.

The disclosure that the SEC shared sensitive corporate data with China is the latest problem for the commission that is charged with monitoring the securities industry.

Chairman Harvey Pitt was forced to resign last week after it was disclosed that he had appointed former FBI Director William Webster to an SEC oversight panel. Mr. Pitt did not disclose to the White House that Mr. Webster was on a corporate audit board of a company under SEC investigation.

Mr. Pitt was under fire from critics over contacts with companies under SEC investigation. He also was criticized by the conservative Center for Security Policy for ignoring the activities in U.S. capital markets of companies that have corporate operations in terrorist-sponsoring states.

U.S. officials view the China data case as either economic espionage or state-sponsored espionage involving China.

An internal SEC document obtained by The Times shows that Miss Chan had access to sensitive information from more than 15 high-tech companies, including several involved in cutting-edge software development.

The document shows that Miss Chan also processed numerous confidential-treatment requests.

Several of the companies whose data were compromised are engaged in security-related work and are contractors for U.S. defense and intelligence agencies.

One company whose internal data were handled by Miss Chan is Veridian, a computer-system designer in Arlington that, according to the company, specializes in "mission-critical national security programs for the national intelligence community, the Department of Defense, and government agencies involved in homeland security."

A spokeswoman for Veridian said the company has sent confidential, proprietary information to the SEC but has heard nothing from the commission about any compromise of the data. Nothing in the SEC filings contained any information about the company's clients, the spokeswoman said.

Officials said Miss Chan is a Chinese national who graduated from Yale University in 1996 and George Washington University Law School last year before being hired by the SEC.

In an e-mail to several former co-workers, Miss Chan stated July 2, that "for personal reasons, I am leaving SEC and will be returning to Hong Kong. I resigned yesterday."

Miss Chan said in the note that she planned to settle in Hong Kong "for good" in September. "Thanks a great deal for all your help," she wrote. "You all have been very kind to me. You are extremely generous with your time and knowledge, for which I am grateful."

Miss Chan has filed requests for information from the SEC under the Freedom of Information Act in an effort to find out who within the commission was responsible for her forced resignation, officials said.

SEC spokesman John Heine declined to comment on the circumstances surrounding Miss Chan's employment or whether the case is under investigation.

Mr. Heine confirmed that Miss Chan, 28, left the SEC in July after 10 months in the SEC's corporate finance division.

U.S. officials familiar with the case said Miss Chan worked in the Office of Computers and Online Services. She was escorted from the SEC building by security guards and her office sealed off July 1, the officials said.

The dismissal was triggered by co-workers who discovered that Miss Chan had accessed a commercial database used by SEC to screen companies.

A co-worker in the computer office discovered that database files had been corrupted and that several e-mails to Miss Chan from China were discovered in a computer after she had used the database service. Miss Chan also was found to have sent sensitive material via e-mail to an address in Shanghai.

Miss Chan also worked on the SEC investigation of the merger between computer giants Hewlett-Packard and Compaq.

According to SEC documents, the number of confidential treatment requests handled by the commission grew from about 540 in 1992 to more than 1,000 in 1996. The confidential information contained in the reports includes financial data and other information about a public company's financial status and operations.

The confidential-treatment requests that Miss Chan handled during her employment included sensitive data from Acclaim Entertainment, which makes video-game software for Sony, Nintendo and Sega, and Interplay Entertainment, another major gaming-software producer.

Miss Chan also had access to security-related companies, including Verint Systems, which produces analytic software "for communications interception, digital video security and surveillance, and enterprise business intelligence," according to the Verint Web site.

She also had access to data were from Citadel Security Software, which produces "security and privacy software" for computer networks, and Ion Networks, another computer-security firm that does business with the government.

Security specialists said sensitive information about the companies would be useful to competitors or to foreign governments.

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