Chip shortages result in record wire fraud reports by desperate buyers

Major semiconductor shortage has led to a boom in wire fraud cases

WASHINGTON DC:

A severe semiconductor shortage has resulted in record wire fraud cases last year reported by desperate buyers, a company that tracks counterfeit and fraud in the chip industry said on Tuesday.

ERAI Inc said in 2021 there were 101 wire fraud cases reported to the U.S.-based firm, up from 70 in 2020 and 17 five years ago.

Companies looking for chips they could not find through authorized and vetted distributors were trying to buy them from shadier brokers and transferring funds for goods that never got delivered, ERAI president Mark Snider said.

Reporting is voluntary and most of the wire fraud was by chip brokers in China, he said.

While there is a government counterfeit parts database called GIDEP, or Government-Industry Data Exchange Program, it doesn't allow anonymous reporting, making ERAI the main database that companies use for navigating counterfeit chip problems and reporting fraud, according to industry experts.

Still, the latest data showed that the number of counterfeit chip incidents reported to ERAI in 2021 was 504 and in 2020 463. That's a sharp drop from 963 in 2019.

Snider said China's pandemic-related shutdowns could be making it harder for counterfeiters to operate and also said counterfeits are increasingly more sophisticated, evading detection.

The data was released at the Symposium on Counterfeit Parts and Materials organized by the Center for Advanced Life Cycle Engineering, a research facility at University of Maryland and industry group SMTA.

Diganta Das, the counterfeit researcher heading the conference said the ERAI data was a good indication of trends.

The real number, however, was likely to be significantly larger because companies fearing brand damage often prefer not to report counterfeit chip purchases.