The FBI Ran a Sting on Huawei While a Bloomberg Reporter Watched

Attendees walk past signage displayed outside the Huawei booth at the 2019 Consumer Electronics Show in Las Vegas, Nevada, on Wednesday, January 9, 2019. Photo: Patrick T. Fallon/Bloomberg via Getty Images

Bloomberg Businessweek has a very entertaining cover story this week involving Chinese consumer electronics giant Huawei, diamond-coated smartphone glass, an FBI sting held at a fast-casual burger joint at CES (with a Bloomberg reporter watching from a nearby gelato stand), and an eventual raid on a Huawei lab in San Diego. What hasn’t happened are any indictments or arrests.

The story goes like this: Akhan Semiconductor had been shopping around its “Miraj Diamond Glass” for several years. Its founder, Adam Khan, had discovered a way to layer a very thin coating of “nano-diamonds” on glass, making glass that the company claims is six times stronger and ten times more scratch-resistant than Corning’s Gorilla Glass, the glass that almost assuredly protects the smartphone in your pocket.

Akhan Semiconductor hoped to land an exclusivity deal with a major smartphone manufacturer, perhaps figuring that they could land the best deal by offering one smartphone maker a major leg-up during a time of declining smartphone sales: the promise of a screen that would be much harder to scratch or crack. Accordingly, it had been sending samples to major manufacturers to test out their product for themselves. Huawei — which is, as of 2019, the world’s second-largest manufacturer of smartphones — asked for a sample to test for itself.

The agreement was for Huawei to return the glass sample after 60 days and keep it within the country, as the diamond coating on the glass meant it came under ITAR (International Traffic in Arms Regulations) regulations, since the diamond coating could also have military uses. When 60 days came and went, Khan and his COO Carl Shurboff became concerned, demanding their sample back.

When Huawei finally returned it five months later, it returned broken into two pieces, with a small bit of the glass sample missing. Fearing that Huawei was attempting to reverse-engineer their diamond-coating technique, Khan and Shuboff contacted the FBI, which immediately launched an investigation.

Huawei has a long history of being accused of stealing intellectual property. Cisco accused the firm of swiping source code for routers in 2002. Motorola accused the company of turning some of its Chinese employees into informants in 2010. In 2012, T-Mobile alleges Huawei attempted to steal parts of Tappy, its robot meant to help simulate how customers use cell phones. (It’s unclear how much of Tappy Huawei actually took; the Washington Post says a Huawei engineer made off with Tappy’s entire arm, while other reports says it was just Tappy’s fingertips.)

Add this to the already strained relations between Huawei and the U.S. government — including the arrest and requested extradition of Huawei CFO and heir apparent Meng Wanzhou, and the U.S. House Intelligence Committee’s naming the company a national security threat in 2012 — and it’s perhaps understandable why the FBI was so quick to leap into action.

Khan and Shuboff agreed to let the FBI record phone calls between them and their contact at Huawei, and eventually agreed to wear wires to a meeting with Huawei reps at CES in Las Vegas on January 8. The FBI had a hotel room wired for sound, but the two Huawei reps asked for a location change, and the meeting ended up happening at a Prime Burger at the Venetian, with a Bloomberg reporter observing all of this from a nearby gelato shop. The reps from Huawei repeatedly said there had been no wrongdoing, and that they remained interested in possibly acquiring a license for the tech from Akhan Semiconductor. (At one point, one of the reps also wondered if perhaps government authorities were monitoring their conversation, which is a normal thing to do and must have been fun for Khan and Shuboff, two entrepreneurs turned amateur FBI spies.)

The evidence gathered by the FBI with the help of Khan and Shuboff was enough to convince a judge to issue a warrant, and on January 28, the FBI raided a Huawei lab in San Diego. The FBI didn’t provide much detail on what they found, and told Khan and Shuboff to cease all communication with Huawei.

Khan and Shuboff, however, were worried. While wearing the FBI wire, Shuboff had run into a rep from another potential customer, and, nervy from wearing a wire, was brusque with them. Now the other company suspected Akhan Semiconductor might be trying to start a bidding war over their glass. Their only option, they felt, was going public. Thus, Akhan Semiconductor issued a statement this morning saying it “believes that Huawei destroyed our product, shipped it to China without authorization, subjected it to tests that it was not authorized to conduct, and returned most of it to us in pieces.” The FBI declined to comment to Bloomberg about the story, and it appears that the case may ultimately remain unresolved.

What goes unexplained in the Bloomberg story, however, is why a Bloomberg reporter was cooling his or her heels at the Cocolini’s parlor watching all this unfold in the first place. The author’s article, Erik Schatzker, works mainly for Bloomberg TV interviewing various bigwigs in tech, finance, and government; no knock against him, but he’s not a Sy Hersh or Woodward and Bernstein–style investigative reporter.

A working theory, then: Akhan Semiconductor reached out to Bloomberg and Schatzker once they began working with the FBI, and was cooperating with both the FBI and Bloomberg as the investigation was ongoing. After becoming worried that other potential deals were now in jeopardy, they decided to let Bloomberg run the story early — Akhan Semiconductor’s statement about Huawei was published after Bloomberg’s story hit the web.

This is just a guess, of course, but it makes sense. Bloomberg gets a roller-coaster ride of a cover story about corporate espionage. Akhan Semiconductor gets a Bloomberg Businessweek cover story about tech so good a major Chinese manufacturer (allegedly) tried to steal it. Huawei, meanwhile, gets another black eye in the press and further endangers its ability to sell 5G routers in the U.S. and to its close allies, business that will be worth billions once the 5G rollout begins in earnest.

A Bloomberg Reporter Watched the FBI Run a Sting on Huawei