(KEY ALLEGATIONS FROM LORAL SHAREHOLDERS CASE:
138. On February 15, 1996, a Chinese Long March 3B Rocket carrying a $200 million commercial communications satellite manufactured by Defendant Loral failed in midflight.
139. According to the Cox Report, the satellite on board the failed rocket was an Intelsat 708 satellite manufactured by Defendant Loral for Intelsat, the world’s largest commercial satellite communications services provider. In October 1988, Intelsat had awarded a contract to Loral to manufacture several satellites under a program known as Intelsat VII. That contract had a total value of nearly $1 billion dollars.
140. On information and belief, the failed launch had been undertaken by China Great Wall Industry Corporation, a state-controlled missile, rocket and launch provider, with reported ties to Chinese intelligence services.
141. The satellite on board the Chinese Long March rocket contained an encryption device on a circuit board that controls the satellite’s communications and movements in space.
142. On information and belief, similar encryption devices are used in U.S. defense satellites, and, consequently, the devices are highly classified secrets of the U.S. Government.
143. On information and belief, the circuit board from the highly classified encryption device in the satellite that was destroyed during the February 15, 1996 launch was missing when the Chinese returned debris from the explosion to U.S. authorities, even though a control box containing the circuit board was recovered intact.
144. People’s Liberation Army soldiers and other Chinese agents reportedly sorted through the debris while U.S. officials were kept away
from the crash site for five (5) hours.
145. U.S. officials have publicly stated that they suspect the Chinese authorities took the board.
147. According to the Cox Report, China Great Wall Industry Corporation created two groups whose members were Chinese nationals to investigate the cause of the Long March 3B launch failure.
148. According to the Cox Report, on February 27, 1996, China Great Wall Industry Corporation reported that the Long March 3B launch failure was caused by a failure in the inertial measurement unit within the control system of the rocket. The inertial measurement unit is a component that provides an attitude reference for the rocket, basically telling it which way is up. This was not the true cause of the failure, however.
149. According to the Cox Report, in early April 1996, China Great Wall Industry Corporation invited both Defendant Loral and Hughes to participate in an Independent Review Committee ("IRC") that would review the Chinese launch failure investigation.
150. According to the Cox Report, Defendant Loral was aware from the start of the IRC meetings that it did not have a license for the IRC activity.
151. On information and belief, Defendant Loral and Hughes participated in at least two (2) rounds of IRC meetings.
152. According to the Cox Report, IRC meetings were not attended by any U.S. government monitors, as almost certainly would have been required had there been an export control license.
153. According to the Cox Report, Defendant Loral and Hughes were well aware that a State Department license was required to provide assistance related to the guidance system of a Chinese rocket. Neither company applied for nor obtained the required license. Defendant Loral was warned of the need for a license at the time it agreed to participate in the investigation, but took no action.
154. According to the Cox Report, Defendant Loral and Hughes also failed to properly brief participants in the failure investigation of U.S. export requirements, failed to monitor the investigation as it progressed, and failed to take adequate steps to ensure that no prohibited information was passed to the Chinese.
155. According to the Cox Report, Defendant Loral and Hughes submitted lengthy written materials analyzing the cause of the guidance system failure to the Chinese and other foreign nationals.
156. As reported by both The New York Times and The Washington Post, Defendant Loral faxed a twenty-five (25) page memorandum to the Chinese summarizing the conclusions of an independent review panel about the causes of the accident. (Elaine Sciolino and Jeff Gerth, "Scientist Who Led Missile Review Promised Help to China," The New York Times, June 6, 1998; John Minz, "Technology Transfer Probe is Widened," The Washington Post, June 24, 1998; John Minz, "Testimony: Export Watchdog Neutered," The Washington Post, June 26, 1998).
157. According to the Cox Report, Defendant Loral and Hughes also engaged in technical discussions, including discussions about the details and causes of the guidance system failure, that were most certainly recorded by the Chinese.
158. According to the Cox Report, neither Defendant Loral nor Hughes disclosed to export control officers of the U.S. Government their unlicensed activities until after they were contacted by U.S. Government licensing officials demanding an explanation for their conduct. The U.S. Government officials became aware of the improper activities through an article in a widely-read industry publication. This article also came to Defendant Loral’s attention prior to its disclosure to the U.S. Government.
159. According to the Cox Report, an aborted third round of IRC was scheduled for June 1996. However, the U.S. Government, upon learning of the IRC’s activities, issued a cease and desist letter to both Defendant Loral and Hughes, ordering the companies to stop all activity in connection with the failure review. The letter also requested each company to disclose the facts related to, and circumstances surrounding, the IRC.
160. According to the Cox Report, in August 1996 the Defense Department prepared a classified assessment of the IRC materials. That assessment reported that the Defense Department would have recommended against issuing a license for the sharing of technical information with the Chinese by Defendant Loral and Hughes.
161. According to the Cox Report, the August 1996 Defense Department assessment cited 18 violations that it believed had occurred during the IRC’s exchange of information with the Chinese.
162. According to the Cox Report, Defendant Loral and Hughes identified for the Chinese the true cause of the failure as a particular element within the Long March 3B’s rocket guidance system. As set forth in the Cox Report, the 1996 Defense Department assessment states: It is likely that the all-Chinese Failure Analysis Team pursued recommendations made by the Independent Review Committee in its draft report . . . and that the pursuit of these recommendations directly resulted in the Chinese team finding the correct cause of failure in the Long March 3B guidance system . . . .
163. As set forth in the Cox Report, the 1996 Defense Department assessment also states with regard to the IRC’s assisting the Chinese to learn the true cause of the failure:
I guess I didn't make a sexy enough title for the thread.
Bump!