U.S. Probes Failed Boeing Satellite Deal Backed by China--Update
January 11 2019 - 6:18PM
Dow Jones News
By Brian Spegele and Kate O'Keeffe
The U.S. Securities and Exchange Commission and the Commerce
Department are investigating Boeing Co.'s relationship with a
satellite startup backed by a Chinese government-owned firm,
following an article by The Wall Street Journal on the matter last
month.
In a letter to the Los Angeles-based startup Global IP, the SEC
requested that the company retain all documents about its work with
Boeing and a number of other individuals and entities, including
state-owned Chinese lender China Orient Asset Management Co.
The letter said the SEC believes the Los Angeles company
possesses "documents and data that are relevant to a matter under
investigation," and asked that it keep materials about Boeing's
deal with the Chinese-backed entity.
The SEC letter was disclosed in a court filing on Jan. 4 by Umar
Javed, one of Global IP's founders.
The court filing was part of litigation against defendants
including a China Orient unit that corporate records show provided
financing for a satellite that Global IP was buying from Boeing.
Under U.S. export laws, American companies are effectively barred
from selling satellites to China.
The letter provided no further details about the probe and
Boeing declined to comment on it, saying in a statement that it
takes rigorous measures to comply with U.S. regulations.
The startup also received inquiries about its Chinese financing
from the Commerce Department, which issues export licenses, and
from the interagency Committee on Foreign Investment in the U.S. --
known as CFIUS, which reviews foreign deals for national security
concerns, according to a statement by Mr. Javed in the same court
filing.
A person familiar with the matter confirmed the Commerce
Department was investigating the deal.
The Treasury Department, which leads CFIUS, and the Commerce
Department aren't permitted to comment on specific
transactions.
Mr. Javed and co-founder Emil Youssefzadeh are suing a unit of
Global IP's government-owned Chinese backer in California federal
court. They allege the Chinese firm secretly took control of Global
IP after the startup accepted around $200 million through a complex
financing arrangement involving offshore firms. The founders say
they told Boeing about their Chinese backing from the outset.
Boeing has declined to answer specific questions from the
Journal about the Global IP deal.
Global IP has previously denied to the Journal that it was
controlled by China Orient, which also has disputed the founders'
allegations.
In the court filing Mr. Javed said he obtained the SEC's letter
due to his status as a minority shareholder in Global IP. He is no
longer involved in the company's day-to-day operations. A lawyer
for Mr. Javed declined to provide details.
The SEC enforces laws that require public companies to maintain
accurate records and truthfully disclose important information to
shareholders. In the past, the agency has punished public companies
over accounting records that didn't accurately reflect violations
of export laws.
The SEC investigation, which is at a preliminary stage, doesn't
mean the agency will bring a complaint against Boeing. The
regulator sometimes starts investigations that are later closed
with no formal action.
Utilizing the Chinese financing agreement, Global IP contracted
Boeing to build the satellite that would beam internet coverage to
sub-Saharan Africa. A concern among national security experts was
that the satellite could be repurposed by China's government for
military activities.
Boeing is the federal government's second-largest contractor
after Lockheed Martin Corp., and following the Journal's report
last month former and current government officials and lawmakers
said they were surprised Boeing would engage in the Global IP deal
if it knew of China's involvement.
The aerospace giant has said it works to protect U.S. national
interests and that the Commerce Department issued the company a
license to go ahead with the deal.
Days after the Journal's report in December, Boeing said it was
scrapping the satellite project, citing nonpayment default by
Global IP. Mr. Javed's filing also said the Commerce Department's
Bureau of Industry and Security had revoked Boeing's export
license.
Boeing referred questions on the license to the Commerce
Department. Beijing-based China Orient didn't respond to a request
for comment.
Dave Michaels contributed to this article.
Write to Brian Spegele at brian.spegele@wsj.com and Kate
O'Keeffe at kathryn.okeeffe@wsj.com
(END) Dow Jones Newswires
January 11, 2019 19:03 ET (00:03 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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