Indictment details plan to steal Samsung secrets for Foxconn China project

By Ju-min Park and Heekyong Yang

SEOUL (Reuters) – When former Samsung (KS:) executive Choi Jinseog won a contract with Taiwan’s Foxconn in 2018, he tapped his former employer’s supplier network to steal secrets to help his new client set up a chip factory in China, a sealed indictment by South Korean prosecutors alleges.

Prosecutors announced the indictment on June 12, saying the theft caused more than $200 million in damages to Samsung Electronics (OTC:), based on the estimated costs Samsung spent to develop the stolen data. The announcement did not name Choi and gave only limited details, although some media subsequently identified Choi and his links with Foxconn.

The unreleased 18-page indictment, reviewed by Reuters, provides details in the case against Choi, including how he is alleged to have stolen Samsung’s trade secrets and details about the planned Foxconn plant.

Choi, who has been detained in jail since late May, denied all the charges through his lawyer, Kim Pilsung.

Choi’s Singapore-based consultancy Jin Semiconductor won the contract with Foxconn around August 2018, according to the indictment.

Within months, Choi had poached “a large number” of employees from Samsung and its affiliates and illegally obtained secret information related to building a chip factory from two contractors, prosecutors allege.

Jin Semiconductor illegally used confidential information involving semiconductor cleanroom management obtained from Cho Young-sik who worked at one of the contractors, Samoo Architects & Engineers, the indictment alleges.

Clean rooms are manufacturing facilities where the enclosed environment is engineered to remove dust and other particles that can damage highly sensitive chips. Samoo had participated in the 2012 construction of Samsung’s chip plant in Xian, China.

Prosecutors allege Choi’s company also illegally obtained blueprints of Samsung’s China plant from Chung Chan-yup, an employee at HanmiGlobal, which supervised its construction and floor layouts involving the chip manufacturing process. They have yet to establish how the information on floor layout was obtained, according to the indictment.

Choi’s lawyer strenuously rejected the claims presented in the indictment.

“What prosecutors allege was stolen has nothing to do with how to design or make chips. For instance, there are public international engineering standards to make cleanrooms and that’s not something only Samsung has,” said Kim.

“A factory layout? You can take a snapshot from Google (NASDAQ:) Maps and experts would know what is inside which building,” Kim said, showing a satellite snapshot of Samsung’s plant in Xian, China.

The plant was never built after Foxconn pulled out, according to Choi’s lawyer and a person with direct knowledge of the case.

In a statement, Foxconn said that while it was “aware of speculation around the legal case in South Korea”, the company doesn’t comment on ongoing investigations.

“We abide by laws and regulations governing jurisdictions we operate in,” Foxconn said.

The indictment does not accuse Foxconn of wrongdoing.

Samsung Electronics, the world’s biggest memory chipmaker, declined to comment on the matter, citing the ongoing investigations.

Samoo told Reuters it was not involved in any alleged activities laid out by prosecutors. Cho was not charged, and could not immediately be reached for comment.

HanmiGlobal also said the allegation was linked to an individual and the firm had no involvement. Its employee Chung has been charged by South Korean prosecutors with leaking business secrets. A lawyer for Chung did not immediately respond to requests for comment.

TRADE SECRETS

Samsung treats the types of materials Choi obtained as “strictly confidential” and safeguards them through multiple layers of protections, allowing access only to those who have authorisation within the firm and at its third-party partners, the indictment says.

The 65-year-old Choi was once seen as a star in South Korea’s chip industry. He worked at Samsung for 17 years, where he developed DRAM memory chips and worked on wafer processing technology, winning internal awards for advancing the company’s DRAM technology, before leaving in 2001.

He subsequently worked at rival SK Hynix for more than eight years, serving as chief technology officer of its manufacturing and research divisions and helping turn around the loss making chipmaker.

According to the indictment, the new Foxconn plant had planned capacity of 100,000 wafers per month using 20-nanometre DRAM memory chip technology. While years behind Samsung’s latest 12- and 14-nanometre technology, 20-nanometre DRAM is still considered a “national core technology” by South Korea.

The South Korean government prohibits such technologies from being transferred overseas unless through legally approved licensing or partnership.

Lee Jong-hwan, a chip engineering professor at Sangmyung University, said information to make optimal conditions for cleanrooms and factory layout was critical to achieving high yield rates for chips, which would have helped China’s domestic chipmaking capabilities.

Lee noted that some data obtained by Choi might turn out not to be sensitive, “But now that China is keen to catch up with South Korean companies… any data related to 10-nanometre, 20-nanometre technology would have been helpful.”

CHINA LINK

Choi signed a preliminary consulting contract in around 2018 with Foxconn to build the chip factory potentially in Xian, his lawyer said.

However, Foxconn ended the contract just a year later and only paid salaries related to the project, the lawyer said. He declined to comment on why Foxconn ended the contract or to provide further details, citing the sensitivity of the matter.

The person with direct knowledge of the case said prosecutors found Foxconn had agreed to provide 8 trillion won ($6 billion) to build the factory, and Foxconn also paid several million dollars to Choi’s company every month until it pulled out of the contract for reasons the indictment did not disclose.

Jin Semiconductor’s financial statement in 2018 said it entered into an arrangement with “a major customer” for the provision of qualified manpower in the next five years. The customer paid an advance of $17,994,217 to the company, according to the statement.

Foxconn, formally called Hon Hai Precision Industry Co Ltd, did not answer questions put to it by Reuters on any payments to or agreements with Jin Semiconductor or Choi.

Choi’s lawyer said his client may be a scapegoat in a campaign by the South Korean government, caught in a rivalry between China and the United States, seeking seek to slow China’s progress in chip manufacturing.

South Korean President Yoon Suk Yeol this month declared chip industry competition an “all-out war”.

“This might be setting an example for the current administration’s agenda, such as technology leaks to China,” Pilsung, Choi’s lawyer said.

A prosecution official declined to comment on the suggestion Choi was a scapegoat.

Choi is charged along with five other former and current Jin Semiconductor employees and a Samsung contractor employee. Trial is set to begin on July 12, court records show.

($1 = 1,294.4600 won)