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Secret Atari DRAM Resale Operation Revealed by FBI


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#1 jmccorm OFFLINE  

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Posted Sat Jan 5, 2013 7:10 PM

Remember the DRAM shortage of the late 80s when the US government worked with the Japanese government to limit DRAM imports to help protect American semiconductor manufacturers?

Website:
http://www.atarileaks.org/

#2 kskunk OFFLINE  

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Posted Sat Jan 5, 2013 8:59 PM

Absolutely great read. Thanks! I had no idea Atari cheated like this, but I'm not surprised. After Micron duped the feds into handing over the DRAM market, they quadrupled prices. The feds helped one US industry enjoy enormous profits, by setting back the computer industry for the rest of the 80s.

I can see how that would motivate desperate behavior... But it's still hard to believe Atari would risk the entire company by breaking federal law in such a systematic way, including fraudulant accounting that the executives must have approved. Really puts Jack Tramiel's "Business is War" philosophy in perspective...

- KS

Edited by kskunk, Sat Jan 5, 2013 9:32 PM.


#3 Allan ONLINE  

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Posted Sat Jan 5, 2013 9:11 PM

WOW!

Allan

#4 potatohead OFFLINE  

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Posted Sat Jan 5, 2013 11:15 PM

Carmel linked a book here, I think it was called something like "Home Computer Wars" which had a lot of detail on how Tramiel ran things and some of the history behind the guy. This kind of thing going on during his reign does not surprise me at all. Love him or hate him, and I kind of feel both, Tramiel was a very interesting business man. Thanks for linking this. Great read.

#5 hunmanik OFFLINE  

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Posted Sun Jan 6, 2013 2:08 PM

Outstanding work, thanks for sharing!

#6 bennybingo OFFLINE  

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Posted Sun Jan 6, 2013 2:34 PM

Talk about balls of steel!!!

#7 potatohead OFFLINE  

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Posted Sun Jan 6, 2013 2:43 PM

Tramiel had a nice, big, solid pair. That's for sure!

#8 carmel_andrews OFFLINE  

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Posted Mon Jan 7, 2013 4:15 AM

So, Can anyone just send a FoI request to any US law enforcement agencies

#9 Rybags OFFLINE  

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Posted Mon Jan 7, 2013 4:37 AM

Not quite.

First up, there might be requirement that you're a citizen. Next, some documents are automatically protected and will be released after X years or in some cases never.

Then you likely have a fee which might be $50 or more per document.

UK government releases some interesting ones at times, some of the old WW2 and Cold War stuff is pretty juicy.

#10 carmel_andrews OFFLINE  

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Posted Mon Jan 7, 2013 5:54 AM

Not quite.

First up, there might be requirement that you're a citizen. Next, some documents are automatically protected and will be released after X years or in some cases never.

Then you likely have a fee which might be $50 or more per document.

UK government releases some interesting ones at times, some of the old WW2 and Cold War stuff is pretty juicy.


Crumbs, you mean you have to pay for it....whats the point (perhaps some of that stuff/info might be released under that countries 30/50 year ruleThere again i guess that's how many universities in the UK got to find out about Tommy flowers work on the collosus (via the 30 year rule),since the UK only recently initiated an FoI act/law

Edited by carmel_andrews, Mon Jan 7, 2013 5:55 AM.


#11 carmel_andrews OFFLINE  

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Posted Mon Jan 7, 2013 5:55 AM

Crumbs, you mean you have to pay for it....whats the point (perhaps some of that stuff/info might be released under that countries 30/50 year rule

There again i guess that's how many universities in the UK got to find out about Tommy flowers work on the collosus (via the 30 year rule),since the UK only recently initiated an FoI act/law

#12 Rybags OFFLINE  

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Posted Mon Jan 7, 2013 6:30 AM

If all FOI requests were free, you'd have every numbnuts crusader in the country asking about stupid things like paperclip expenditure by government departments.

Re early computer stuff, it's fair to say the US stole the thunder there for a good while in the late 40s through 50s - what they (UK scientists) did in Blechley Park was years ahead of it's time and layed the foundations for others to do better things and take the credit and profit.

Edited by Rybags, Mon Jan 7, 2013 6:30 AM.


#13 carmel_andrews OFFLINE  

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Posted Mon Jan 7, 2013 6:50 AM

If all FOI requests were free, you'd have every numbnuts crusader in the country asking about stupid things like paperclip expenditure by government departments.

Re early computer stuff, it's fair to say the US stole the thunder there for a good while in the late 40s through 50s - what they (UK scientists) did in Blechley Park was years ahead of it's time and layed the foundations for others to do better things and take the credit and profit.





Not neccessarily, the particular law enforcement agency or government department could ask the person wanting this/that information (i.e the FoI request) to show any research or documentation to backing up their FoI request (i.e. any work or articles they have done/written themselves) or even better they would have to get their request sponsored by that law enfocement agency or government department (this in itself should ileviate the majority of bogus FoI requests)

Perhaps i should have said so in the first place (whoopsie daisy)

#14 Rybags OFFLINE  

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Posted Mon Jan 7, 2013 6:57 AM

Another thing is - to make a request you need to at least have some overview of what info you want.

Imagine if FOI was available in 1950 - how would Joe Public know about Blechley Park? It was one of the best kept secrets of the war.

Asking the requestor to justify the question - I got doubts. The thing is it creates admin overhead, half the idea of the fee is to discourage people from spamming random requests.

#15 jmccorm OFFLINE  

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Posted Mon Jan 7, 2013 6:16 PM

If anyone is interested in more detail, read the timeline on the website or the FBI documents themselves. For everyone else, here is a bettery summary of the full story. I feel more comfortable writing informally in a forum than I do making something more formal and putting it on a website. See what you think?

In 1987, Jack Tramiel's turnaround of Atari had actually worked. In fact, Atari was doing well! They were flush with cash. At this point, Atari was really to begin a resurgence and to build a new empire where they were a major player once again. Their first step was to fix their retail channel. (Another idea they were pursuing about that time was to invest in a semiconductor manufacturer instead.) A well known criticism of Atari was that they had alienated computer dealers and mass merchants in the US. So Atari decided they'd address the sales channel problem by investing in a retail outlet. That would be Federated Department Stores.

And so they bought Federated. But by February 1988, Atari realized that they were totally screwed. They paid $67 million for Federated. Their audit revealed that they needed to write off $43 million of that purchase. So once the company was on the books, it was really only worth $24 million. On top of that, it wasn't profitable. Losses were approximately $3 million a month.

Later court documents seem to suggest that Federated knew they were screwing Atari over on the deal. And it led to a crazy court ruling which says, "If you know they're lying to you and you go foward, you've screwed yourself. Even if you didn't grasp the full depth of how much they were lying to you, YOU are now responsible for the damage." That same decision would poke its head up once again in the Facebook vs ConnectU case with the Winklevoss twins and the ownership of Facebook. They'd later try to sue to recover damages, and that's when they ran into another problem. The merger agreement actually indemnified the CEO of Federated! Was all of this the result of an incompetent CIO at Atari? Overeager management? Were they intentionally being screwed by the owners of failing Federated who wanted to cash out? I think it is a little of all that and more.

If you're looking for the point that Atari died, it would be the acquisition of Federated. Their upwards momentum stopped at this point, and now they were treading water. From that point forward, Atari was trying to survive. Had Atari have put their money somewhere, anywhere else but Federated, they could have seen some fantastic growth in their company.

So, back to the timeline. Jack Tramiel sees the writing in the wall. Atari isn't going to be a rocket to the stars. They're screwed. Just a few months after the audit, he turns the business over to his sons to manage. I remember that some people blamed his sons for the fall of Atari. Larry, Moe, and Curly, as it were. I don't know how true that is. But at that point the company was already broken. The public simply wasn't aware of it.

Two months after Sam Tramiel took over Atari is were the DRAM cleansing and resell operation began. Japanese DRAM manufacturers were tightly controlled on the price and quantitiy that they could sell their chips to the US. But there was no such restriction to the rest of the world. And that was the opening that made the scheme possible. One could ship chips from Japan to Taiwan, and then Taiwan to the US. As long as the import documents were on the up-and-up, it wasn't criminal, at least.

Of course, you'd presume they'd still be open to civil liability to the Japanese semiconductor manufacturers, and they'd be politically vulnerable, and they'd absolutely piss off just about everyone on both sides of the Pacific. One defense that was explained to the FBI was that "it was only a matter of business ethics". Well, maybe. Some ethics, huh? But that was assuming that they weren't trying to hide the operation and their import documents were on the up-and-up. And apparently, they weren't always describing the contents being shipped, and they weren't always honest about the quantity of chips in a shipment. "Ooops. I forgot a zero at the end!"

I really want to tell the story of how I think this plan came into motion. Did it start at Atari? Did it come from the outside? I don't have solid proof, but I have some seriously tight circumstantial evidence, including one person's own words. Unfortunately, it involves bringing a person into the spotlight who is not in the FBI documents. So I'm reluctant to say anything here in the absence of counsel. But back to the question, do I think this was Atari's idea? In a way, yes. But I'm pretty certain it didn't originate with the Tramiels or the CFO.

The FBI documents totally talk about the smuggling and all the cloak and dagger, which is kinda cool. You should read through the timeline on the website, or the raw FBI document itself, for some of the flavor there. Things appeared so shady that it was Atari's own employees who turned them into the FBI, fearing that they were getting pulled into some illegal operation. What the FBI documents don't really point to so much is motive. And I think the Federated story provides the motive. The FBI was told that Atari's own CFO ordered a delivery of materials to Sun Microsystems. With the DRAM sales, Atari could afford to spend more time to turn Federated around. They wouldn't have to publicly admit failure. They wouldn't have to scare investors because now they could meet their numbers.

Towards the middle of 1989, the FBI and US Customs made their case to the Assistant US Attorney. The Assistant US Attorney was considering charges of either wire fraud or falsification of import documents. But it was pretty clear that if that case went forward, Atari would be totally destroyed. The FBI agent that was assigned to the Atari case was pulled into an undercover case. A couple of months later, the rumors were circulating that, on its own, Atari was circling the drain.

By 1991, Atari was a shell of what it was in 1987. The Department of Justice decided not to pursue the case. They left the case with the US Customs Department, but the FOIA request only covered the FBI. We lose the story at that point, but presumably, it didn't go much further. Our new found Atari of story's demise ends with a wimper more than it does a bang.

#16 potatohead OFFLINE  

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Posted Mon Jan 7, 2013 7:57 PM

wow. i think tramiel had balls, but not in this context ..great story

#17 carmel_andrews OFFLINE  

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Posted Tue Jan 8, 2013 6:31 AM

Another thing is - to make a request you need to at least have some overview of what info you want.

Imagine if FOI was available in 1950 - how would Joe Public know about Blechley Park? It was one of the best kept secrets of the war.

Asking the requestor to justify the question - I got doubts. The thing is it creates admin overhead, half the idea of the fee is to discourage people from spamming random requests.






I found out that most of these FOI requests come from researchers and Journalist types anyway, so the chances of a member of joe public wanting to put in for an FOI is very remote

Or is it that these researchers and jounalists work for (or are producing work for) those organisations that can afford to pay the request fee

#18 carmel_andrews OFFLINE  

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Posted Tue Jan 8, 2013 6:36 AM

If anyone is interested in more detail, read the timeline on the website or the FBI documents themselves. For everyone else, here is a bettery summary of the full story. I feel more comfortable writing informally in a forum than I do making something more formal and putting it on a website. See what you think?

In 1987, Jack Tramiel's turnaround of Atari had actually worked. In fact, Atari was doing well! They were flush with cash. At this point, Atari was really to begin a resurgence and to build a new empire where they were a major player once again. Their first step was to fix their retail channel. (Another idea they were pursuing about that time was to invest in a semiconductor manufacturer instead.) A well known criticism of Atari was that they had alienated computer dealers and mass merchants in the US. So Atari decided they'd address the sales channel problem by investing in a retail outlet. That would be Federated Department Stores.

And so they bought Federated. But by February 1988, Atari realized that they were totally screwed. They paid $67 million for Federated. Their audit revealed that they needed to write off $43 million of that purchase. So once the company was on the books, it was really only worth $24 million. On top of that, it wasn't profitable. Losses were approximately $3 million a month.

Later court documents seem to suggest that Federated knew they were screwing Atari over on the deal. And it led to a crazy court ruling which says, "If you know they're lying to you and you go foward, you've screwed yourself. Even if you didn't grasp the full depth of how much they were lying to you, YOU are now responsible for the damage." That same decision would poke its head up once again in the Facebook vs ConnectU case with the Winklevoss twins and the ownership of Facebook. They'd later try to sue to recover damages, and that's when they ran into another problem. The merger agreement actually indemnified the CEO of Federated! Was all of this the result of an incompetent CIO at Atari? Overeager management? Were they intentionally being screwed by the owners of failing Federated who wanted to cash out? I think it is a little of all that and more.

If you're looking for the point that Atari died, it would be the acquisition of Federated. Their upwards momentum stopped at this point, and now they were treading water. From that point forward, Atari was trying to survive. Had Atari have put their money somewhere, anywhere else but Federated, they could have seen some fantastic growth in their company.

So, back to the timeline. Jack Tramiel sees the writing in the wall. Atari isn't going to be a rocket to the stars. They're screwed. Just a few months after the audit, he turns the business over to his sons to manage. I remember that some people blamed his sons for the fall of Atari. Larry, Moe, and Curly, as it were. I don't know how true that is. But at that point the company was already broken. The public simply wasn't aware of it.

Two months after Sam Tramiel took over Atari is were the DRAM cleansing and resell operation began. Japanese DRAM manufacturers were tightly controlled on the price and quantitiy that they could sell their chips to the US. But there was no such restriction to the rest of the world. And that was the opening that made the scheme possible. One could ship chips from Japan to Taiwan, and then Taiwan to the US. As long as the import documents were on the up-and-up, it wasn't criminal, at least.

Of course, you'd presume they'd still be open to civil liability to the Japanese semiconductor manufacturers, and they'd be politically vulnerable, and they'd absolutely piss off just about everyone on both sides of the Pacific. One defense that was explained to the FBI was that "it was only a matter of business ethics". Well, maybe. Some ethics, huh? But that was assuming that they weren't trying to hide the operation and their import documents were on the up-and-up. And apparently, they weren't always describing the contents being shipped, and they weren't always honest about the quantity of chips in a shipment. "Ooops. I forgot a zero at the end!"

I really want to tell the story of how I think this plan came into motion. Did it start at Atari? Did it come from the outside? I don't have solid proof, but I have some seriously tight circumstantial evidence, including one person's own words. Unfortunately, it involves bringing a person into the spotlight who is not in the FBI documents. So I'm reluctant to say anything here in the absence of counsel. But back to the question, do I think this was Atari's idea? In a way, yes. But I'm pretty certain it didn't originate with the Tramiels or the CFO.

The FBI documents totally talk about the smuggling and all the cloak and dagger, which is kinda cool. You should read through the timeline on the website, or the raw FBI document itself, for some of the flavor there. Things appeared so shady that it was Atari's own employees who turned them into the FBI, fearing that they were getting pulled into some illegal operation. What the FBI documents don't really point to so much is motive. And I think the Federated story provides the motive. The FBI was told that Atari's own CFO ordered a delivery of materials to Sun Microsystems. With the DRAM sales, Atari could afford to spend more time to turn Federated around. They wouldn't have to publicly admit failure. They wouldn't have to scare investors because now they could meet their numbers.

Towards the middle of 1989, the FBI and US Customs made their case to the Assistant US Attorney. The Assistant US Attorney was considering charges of either wire fraud or falsification of import documents. But it was pretty clear that if that case went forward, Atari would be totally destroyed. The FBI agent that was assigned to the Atari case was pulled into an undercover case. A couple of months later, the rumors were circulating that, on its own, Atari was circling the drain.

By 1991, Atari was a shell of what it was in 1987. The Department of Justice decided not to pursue the case. They left the case with the US Customs Department, but the FOIA request only covered the FBI. We lose the story at that point, but presumably, it didn't go much further. Our new found Atari of story's demise ends with a wimper more than it does a bang.






My thinking was that Atari and the FBI as well as US authorities struck some sort of deal around the same time JT was instigating these shenanaghans (after all it was in JT and Atari's interests to), the deal was that the FBI and US authorities wouldn't reveal Atari's involvement (i.e. some sort of imdemnity from prosecution) in exchange for some help in catching people that were 'dirty dealing', so to speak (or some sort of cash payment, like handing over any profits Atari made from the Dram sale)

#19 Guitarman OFFLINE  

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Posted Tue Jan 8, 2013 11:56 PM

What an amazing read!!

#20 Savetz OFFLINE  

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Posted Tue Jul 8, 2014 10:40 PM

The AtariLeaks.org site is gone, but with Josh McCormick's permission, I have moved the site in its entirety to http://www.atariarch...org/atarileaks/

 

In addition, I'll be talking the site and what Josh discovered in the next episode of Antic: The Atari 8-Bit Podcast.

 

--Kevin



#21 Bryan OFFLINE  

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Posted Wed Jul 9, 2014 12:21 AM

It all sounds like a normal day at the office for Jack.



#22 jhd OFFLINE  

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Posted Thu Jul 10, 2014 12:41 PM

Not neccessarily, the particular law enforcement agency or government department could ask the person wanting this/that information (i.e the FoI request) to show any research or documentation to backing up their FoI request (i.e. any work or articles they have done/written themselves) or even better they would have to get their request sponsored by that law enfocement agency or government department (this in itself should ileviate the majority of bogus FoI requests)

 

Slightly O/T, but there is no such requirement in Canada. There is both Federal Law Enforcement (Royal Canadian Mounted Police) and the various Provincial/Municipal police forces -- and even smaller entities like security on public transit. All of these entities are covered by some sort of Freedom of Information (FOI) legislation.  Anyone can make an FOI request -- there is no need to establish previous research on a topic or have any kind of sponsorship.

 

That said, unless someone is requesting their own personal information, or general things like policy documents or photo radar manuals, not much is going to be released. Someone cannot, for  example, request the criminal record or arrest report of a third party. 

 

In Alberta, at least, there is discretion to release information that has been in existence for 75 years or more, but that still does not guarantee access to sensitive matters like medical or police records, 



#23 jmccorm OFFLINE  

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Posted Sun Nov 27, 2016 11:54 AM

Update. Or a non-update?

 

I put in some additional effort to tie up some of the loose ends after this story. I put in a request with the US Attorney's Office (USA), and another request with the US Customs and Border Patrol (CBP) for for shipment records. The request given to the USA was very specific and referenced the FBI case number. They said that they had no records. The request sent to the CBP was more general and asked for shipment records involving Atari during that timeframe. It also came back negative.

 

I traced the career of one secondary figure who was named in the story and asked if she wanted to help us better understand the story. She did not. Today she's an executive in a well-known company. After the request, it appears that her time at Atari has been scrubbed from the public resume that I used to locate her.

 

In the redaction process, the FBI goes through great efforts to scrub the names of their own agents. They don't always do a perfect job. The agent that was assigned to this case was a female who has, for the most part, avoided the public eye, and since retired. She could still be a possible lead, but I figured it would be an unproductive and an unwelcomed intrusion.

 

If anyone would like to pick up the story and run with it some more, you've got my blessing.






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