Chip shortage results in record reports of wire fraud by desperate shoppers

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

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

Companies looking for chips they couldn’t find through licensed and vetted dealers were trying to buy them from more dubious middlemen and wired funds for goods that were never delivered, ERAI President Mark Snider said.
The report is voluntary and most of the wire fraud was carried out by chip brokers in China, he said.

While there is a government counterfeit parts database called GIDEP, or Government Industry Data Exchange Program, it does not allow anonymous reporting, making ERAI the primary database that companies use to browse counterfeit chip issues and reporting fraud, according to industry experts.

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

Snider said pandemic-related shutdowns in China could make it harder for counterfeiters to operate and also said counterfeits are becoming more sophisticated and evading detection.

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

Diganta Das, the counterfeiting researcher who led the conference, said the ERAI data was a good indication of trends.
However, the actual number is likely to be significantly higher because companies that fear brand damage often prefer not to report purchases of counterfeit chips.