Warnings about compromised parts in U.S. Navy subs go unheeded

TAMPA — Robert Castro was a career Marine, a combat veteran of Vietnam and a trained intelligence officer who spent much of his life protecting secrets.

So why won't anyone listen when he warns about the high-tech computer parts his Tampa company helped sell to the Navy?

Some of the equipment is now installed on U.S. submarines, operating part of a secret communications network.

Castro says the equipment is counterfeit.

"I bet if the sub captains knew, they would go berserk," said Castro, 60, who has warned both the FBI and the Navy because he fears the equipment may be an electronic Trojan horse, capable of sending data to a third party without anyone knowing.

"But nobody wants to listen to a podunk company from Tampa," he said.

The companies that made and installed the equipment — electronic switches that route data on computer networks — say Castro is wrong. They insist the gear is genuine, poses absolutely no security risk and works normally.

Castro isn't buying it. Angry and frustrated, he is determined to clear a reputation he says was shattered by a $100 billion counterfeit black market that flourishes in Hong Kong and reaches like a malignancy to Tampa Bay.

The counterfeits, he says, killed his business. And in a Tampa courtroom, they almost killed him.

• • •

Robert Castro joined the Marines at the height of the Vietnam War with no particular goal in mind. A solid student and standout baseball player, he wanted to see more of the world than his Houston neighborhood, where he and seven siblings lived with his mother.

Castro thrived in the disciplined culture of the Marines, which he says suited his meticulous nature. In 1968, he served a tour of combat in Vietnam, then volunteered for a second.

Castro won't talk much about his time in war. He tells anyone who asks that he did his duty, stood by his buddies, behaved with honor, earned the next man's trust.

He said he learned that a man is only as good as his word.

Castro earned an officer's rank without graduating from college, one of the service's rare "Mustang" officers. He was trained in intelligence, priding himself on his organization and attention to detail. If a subordinate misplaced a classified file, he fumed.

Castro retired in 1988, after heading a classified intelligence unit at U.S. Central Command at MacDill Air Force Base.

With his wife, Terry, 62, and a third partner, Castro then formed American Data & Computer Products, working hard to forge a niche in the ultra­competitive world of defense contracting.

The Castros rarely earned more than $100,000 annually in profits, even when sales reached a high of $42-million in 2004. Margins were razor-thin. But American Data and its 17 employees earned the trust of bigger companies with which it did business, the Castros said.

American Data's most important customer was Lockheed Martin, a giant defense contractor that twice recognized the upstart with awards of excellence for small businesses.

In 2004, Lockheed asked the Castros to bid on a deal to provide 68 computer networking switches made by Cisco Systems Inc. The switches route data on classified computer networks used by Navy submarines. The Castros won the $554,000 contract.

Defense contractors like Lockheed can buy directly from Cisco. But by going to American Data, an authorized Cisco seller, Lockheed helped meet government rules mandating a percentage of its military business go to small, minority and veteran-owned firms.

The sale between Lockheed and American Data opened a convoluted and confusing series of business deals from Largo to Hong Kong, some of which the Castros wouldn't become aware of for years. A dozen companies would ultimately have a hand on those computer switches, records show, further muddying their origins to Castro. But in the beginning, Castro said, nothing hinted at the complications to come.

• • •

The Castros ordered the computer switches from Gulfcoast Workstations in Largo, a respected company owned by Relational Technology Services of Rolling Meadows, Ill.

Gulfcoast told American Data repeatedly in e-mails that the switches would be purchased directly from Cisco. But that wasn't true.

Gulfcoast instead bought the switches from two small companies in California that weren't authorized to sell new Cisco equipment, documents show.

Selling used — or unauthorized — equipment isn't illegal. A thriving web of unauthorized sales channels exist. But used equipment isn't backed by a Cisco warranty. It's more apt to have untraceable origins that make buyers like the U.S. military wary.

And this particular deal called for only brand-new product, Robert Castro said.

Unknown to American Data, one of those California companies bought 48 of the 68 switches from two businesses in Hong Kong.

As those switches began arriving in the United States, neither Gulfcoast nor its California supplier noticed an oddity on shipping labels.

One label showed a switch being shipped on June 1, 2004, though it also showed the device was manufactured on Oct. 21 of the same year. Another was shipped two years before the label said it was made. Label after label contained the same befuddling dates.

How could something be shipped to a customer before it existed?

Lockheed noticed another problem when the switches arrived from Gulfcoast — duplicate serial numbers on six different switches.

• • •

On July 21, 2005, Cisco examined the switches. Its findings stunned American Data: Some of the switches appeared to have altered serial numbers. And the devices appeared to be used.

Lockheed demanded replacements. Gulfcoast, which already had been paid $275,000, offered to replace only those with duplicate serial numbers. Meanwhile, Gulfcoast told Castro it wanted the balance owed by American Data: $250,000.

Castro refused to pay unless Gulfcoast made things right.

While Gulfcoast and its Illinois-based parent company began talking lawsuits, a Gulfcoast employee, Charles Dwyer, sent an e-mail to his boss.

"We won't sue them," Dwyer wrote. "If we did choose to take this to court, what is our claim? At the end of the day, we supplied bogus equipment. It doesn't matter that we were completely unaware of it."

Gulfcoast sued American Data anyway. American Data filed a countersuit.

The Castros faced a critical decision.

It was clear that Gulfcoast wouldn't replace the switches. To keep their good corporate reputation, the Castros would have to buy new ones.

So they took a loan against their Tampa home, and Robert's mother did the same with her home in Houston — as did one of the company's longtime employees. They raised more than $600,000 to buy new switches and finance litigation.

By now, Robert Castro had suspicions the switches might be counterfeit. He found it hard to believe that so many of them could end up on the used market so quickly. The devices had been sold new in just 2003.

Lockheed told American Data it didn't need replacements on all the switches. It was keeping 15 of the 68 because they already had been installed on a classified Navy network.

Cisco later said it determined after an exhaustive inspection that all 15 of those switches were genuine.

Castro had grave doubts.

• • •

As documents were released in the months leading up to trial, Castro learned a great deal about the switches. It was like unwrapping a mystery, he said.

Castro found out about the two California companies who sold the switches to Gulfcoast. He saw how one of those companies, in turn, bought 48 switches from two businesses in Hong Kong. And those 48 switches bore serial numbers that appeared to have been stolen from other, genuine switches, Castro said.

Castro said he could only conclude those 48 switches are counterfeit since two switches with the same serial number are not supposed to exist. The remaining 20 switches, he said, were genuine, though he said they weren't new.

Cisco doesn't deny the 48 switches are "technically counterfeit." But Cisco, which inspected many of them, said the counterfeiters got real Cisco equipment and attached new serial numbers to the devices. They also illegally installed "enhanced" software on the "standard" software switches, Cisco said.

While meeting the legal definition of counterfeit, Cisco said in a statement, "all parts were genuine and manufactured by Cisco."

In an interview, Cisco brand protection manager Shelley Raina said Lockheed replaced the software on all the switches, making it impossible for data to be sent to a source other than the intended destination.

"Any notion that these switches (pose) a security threat is ... quite misleading," said Raina, who noted he has never seen a Cisco product modified to make a network more vulnerable to a security threat.

Castro isn't so certain. "We have to realize there are people in this world who are as smart as we are," he says.

Whether "technical" counterfeits or real, neither Castro nor Cisco can identify who altered those serial numbers.

• • •

The case of the "counterfeits" moved closer to trial.

Preparation was grueling and stressful. At times, Castro had trouble sleeping. His wife would lose 30 pounds. There was no time for vacations, movies or even an occasional round of golf. The family's entire life was on the line.

The civil trial opened on Sept. 17, 2007 in Hillsborough Circuit Court. The attorney for Gulfcoast's parent company, Relational, denied the switches were counterfeit. Gulfcoast and Relational, he said, did nothing wrong.

Then he started hammering the Castros.

American Data knew it was ordering unauthorized product and the Castros got caught by Lockheed, the lawyer said. The Castros did so, the company argued, to enhance their profit because buying new, authorized switches is more expensive.

"At the end of the day, the evidence will show that American Data knew exactly what they were doing," attorney Gregory Orcutt told jurors.

He said American Data violated agreements, including one with Lockheed specifying that the Castros buy the switches from just one authorized company, a source the Castros didn't use.

These were switches critical to national defense. And American Data went to an unauthorized source? The charge was devastating.

Robert Castro insisted Lockheed had changed that requirement, allowing him to buy the switches from anybody. But Lockheed never acknowledged such authorization.

Who would jurors believe, the company president trying to save his business or the giant defense contractor with no dog in the fight?

It would be more than a year later, after the trial was over, before Lockheed finally admitted that Castro was correct — that American Data had not violated the agreement.

• • •

Castro took the stand on the trial's third day.

He hadn't been feeling well that morning. He was sweating profusely. It took all his energy to concentrate. He tried to avoid the jury's gaze by looking up at the lights. His chest felt heavy. He was sure jurors would think he was lying.

After an hour of testimony, Castro walked out of the courtroom. His wife looked at him and was stunned by his appearance.

"You've got to get yourself to a doctor," she said.

Castro walked to a nearby fire station in downtown Tampa. He was near collapse when he arrived. Paramedics rushed him to Tampa General Hospital.

He had suffered a heart attack and underwent procedures to clear two blocked arteries.

For several days, Castro remained in the hospital bed, anxious for reports from the courtroom by his wife. Terry Castro was nervous. She felt the need to protect her husband, to keep his stress level down.

As she sat in court and listened to the lawyers argue, she began to wonder if victory was as certain as she always thought.

But she kept her thoughts from her husband. She figured he didn't need to hear her doubts. Much later, she said, "I didn't want to lose him."

It would be about six days before doctors reluctantly released Castro. On Sept. 26, 2007, jurors reached a verdict. At first, Castro thought he misheard it.

The jury ordered American Data to pay Gulfcoast $250,000 for breach of contract. But they also found that Gulfcoast and Relational, its parent company, had violated the Florida Deceptive and Unfair Trade Practices Act and that Gulfcoast had made false statements to American Data.

But jurors awarded the Castros no damages, a verdict Robert Castro said he found inconsistent, even illogical.

Outside the courtroom, the Castros gathered with their attorneys. Terry Castro started to weep. One of her employees told her, "Don't let them see you cry. Don't give them the satisfaction."

Terry wiped her eyes and stopped.

Within days of the verdict, Relational's lawyers offered to settle the case for something less than the full $250,000. Robert Castro said they never named a figure. But the deal had one catch.

The company wanted the 53 switches that had been returned by Lockheed and were now sitting in Castro's warehouse. Castro refused because he feared Relational would resell the switches.

Castro said he didn't want anybody else harmed by the devices.

• • •

The verdict sealed American Data's fate.

Business already had started to slip away because of the cloud over the Castros' reputation. Cisco had notified them it was terminating the agreement allowing American Data to sell new Cisco equipment.

Cisco would say later that American Data violated its contract by buying from unauthorized sources. But the Castros said they were fooled by Gulfcoast into thinking the switches were coming direct from Cisco.

The Castros' Lockheed business dropped to nothing.

One after another, the Castros laid off their employees. They struggled to pay their bills and even their own mortgage. Robert Castro's brother and sisters chipped in to help his 80-year-old mother save her own house in Texas.

One day, Castro's 9-year-old granddaughter, Katie, who called him Poppie, looked up at her grandfather and said, "Don't worry, Poppie. When I get big, I'll get a good job. I'm going to help."

Castro was stunned because he had tried to insulate her from the worry about money. Fighting his emotions, he told Katie, "Don't worry about it honey. Everything's going to be okay."

Castro wasn't sure if he believed it himself.

Soon, American Data's office building went into foreclosure. Last year, the Castros finally filed for bankruptcy, and the court ordered the company's liquidation to pay $1.8 million in debts.

Before and after the trial, Castro contacted the FBI and the investigative arm of the Navy about the switches. But Castro said he never heard back.

Of the 15 switches kept by the Navy, eight are certain counterfeits from China, Castro said. Castro said no security officer worth his salt would let those suspect switches remain on a submarine.

A Lockheed spokesman said Cisco reassured the company the switches are genuine, no threat posed.

"Those same 15 switches are still installed today and are working properly," Lockheed said in a statement.

• • •

In February 2008, the FBI announced arrests and the recovery of counterfeit Cisco equipment, mostly from China, with a street value of $76 million in an investigation dubbed "Operation Cisco Raider."

But none of the arrests are related to the American Data case, which puzzles Castro. An FBI spokesman did not return calls for this story.

Cisco, meanwhile, notified Castro that it wanted the switches destroyed after the litigation.

After all, Cisco reminded him, the switches are counterfeit.

About this story

This story is based on the voluminous trial records of the civil court case between American Data and Gulfcoast Work­stations, including the complete trial transcript. In addition, the Times interviewed Robert and Terry Castro, their business partner and several of their former employees. Gulfcoast's parent company, Relational Technology, declined to comment. Hillsborough jurors who heard the case either could not be reached or declined to comment. The Navy and FBI did not return calls.

Warnings about compromised parts in U.S. Navy subs go unheeded 05/16/09 [Last modified: Saturday, May 16, 2009 10:17pm]

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