Yu Zhou and Li Chen were a husband-and-wife team that had built their reputations on breakthroughs in cutting-edge medical therapies at Ohio’s elite Nationwide Children’s Hospital. Along the way, they’d also founded a Chinese company and sold it to a Nasdaq-listed biotech business worth more than $150 million. But Zhou and Chen’s careers took a dramatic turn on July 29 when federal agents arrested them for stealing medical secrets from the former employer.
But there’s more: Though they’re not being charged with economic espionage on Monday, Forbes has learned they’re still being investigated over links to the Chinese Communist Party. Those charges, according to a prosecutor on the case, could be filed at a later date.
The case, exclusively revealed by Forbes ahead of an announcement by the Department of Justice and the unsealing of an indictment on Monday, forms part of a major operation by the FBI’s counterintelligence and IP theft units to hunt down those the agency believes are either pawns or recruits of the Chinese government.
It’s a purge that, from the perspective of the Department of Justice and national security experts, is a long overdue step in tackling the trade war with China. The flip side from those defending Chinese scientists under investigation is that this “red scare” is terrorizing and scaring off elite researchers who could benefit America’s economy.
China’s IP assaults on American hospitals
Federal agents have been fighting the theft of American military and tech secrets by the Chinese government and companies for decades, but the Zhou and Chen case offers a glimpse into the perceived depth of the problem. The scientific breakthroughs the pair are accused of stealing and taking back to China are niche to the point of being incomprehensible to the layman. To dumb it down, they’re accused of pilfering techniques on how best to isolate “exosomes.” Think of exosomes as little bubbles that transport proteins and genetic information between cells. Isolating them means they can be used as potentially revolutionary vehicles for drug delivery or for diagnosis. Being able to isolate exosomes can be especially important for researching diseases in premature babies, where doctors have smaller sample sizes than with an adult.
Zhou had been studying those exosomes as part of his ten years at a lab within the Nationwide Children’s Hospital, home to one of the biggest pediatric research centers in the U.S. He left in 2017. His wife, Chen, worked in a different NCH lab. She resigned in 2018, having joined in 2008.
Still employed by the hospital, in 2015, Zhou and Chen cofounded a new Chinese business, Beijing Genexosome. It uses exosome technology to carry out diagnosis and treatment. Beijing Genexosome is now under the control of Avalon GloboCare, which owns another company, Genexosome Technologies. Zhou was also named co-CEO of that latter company after it acquired Beijing Genexosome in 2017. Avalon, which is listed on the Nasdaq and currently has a market cap of $180 million, has bases in New Jersey and across Beijing, Shanghai and Wuhan.
Zhou was proud of his work, saying in a press release for the Avalon acquisition: “Our proprietary exosome isolation system enables us to capture exosomes quickly and efficiently from a tiny volume of any bodily fluids. Known as ‘liquid biopsies,’ we believe our system is transformative to the industry as the technology will allow for the diagnosis of certain diseases that were previously impossible to accurately determine due to the limited availability of patient samples.”
But according to the DOJ, as part of their non-hospital enterprises, Zhou and Chen were taking intellectual property developed and owned by the NCH that was, in part, funded by U.S. federal government grants. And, the government said, Zhou was making big money. Prosecutors allege that Zhou, just after the left the children’s hospital in November 2017, began receiving multiple payments from Avalon amounting to nearly $900,000. As reported in SEC filings, Zhou also received 500,000 shares in common stock from Avalon and 400 shares from Genexosome Tech. At the time, Avalon stock was worth $3 per share, meaning Zhou had amassed a small fortune and was worth at least $2.4 million. He was also on a salary of $160,000 as co-CEO of Genexosome Technologies, according to the SEC.
In the same month that he was receiving those payments, the NCH received an anonymous tip, which alleged “potential theft of intellectual property, misconduct and conflict of interest” by Zhou and Chen, according to a search warrant application for Zhou’s property. That tip also noted that the husband and wife had filed four patents in China related to research that looked much like that developed at NCH, the FBI claimed in that application.
As part of the alleged conspiracy, Zhou and Chen also repeatedly shifted internal NCH emails containing information on research to their personal Gmail and Genexosome Tech accounts. And, the government claimed, the husband and wife knew that in sending such emails they may have violated intellectual property rights; one email sent by Chen that had Zhou copied in contained the NCH policy on intellectual property.
The DOJ also claimed that Zhou and Chen worked closely or took payment from a string of Chinese-backed organizations, including the International Technology Transfer Network, the National Natural Science Foundation of China (an organization overseen by the Chinese Communist Party) and China’s State Administration of Foreign Expert Affairs. The pair also travelled to China to give talks on exosome science without telling NCH or getting approval, the DOJ said.
Avalon Globocare CEO David Jin did not return calls and emails requesting comment. An Avalon spokesperson said: “Yu Zhou is no longer an employee or affiliated with Avalon GloboCare.” An SEC filing recently noted that Zhou was let go as co-CEO of Genexosome Technologies on August 14.
Messages to LinkedIn and email accounts belonging to Chen and Zhou did not receive a response. No counsel was listed for the pair at the time of writing, and relatives didn’t respond to emails and calls. No response was received from either Chen or Zhou’s Facebook accounts. The latter’s page has a number of recent images, one from January, in which a smiling Zhou is seen at the Nasdaq, getting ready to ring the closing bell as part of his role with Avalon.
A spokesperson for the NCH said: “When we discovered this incident, we alerted the FBI and have been actively collaborating with them. We are grateful for their expertise throughout this process. We are unable to provide any specific details about the case.”
A Thousand Talents
The arrest of Chen and Zhou comes as American intelligence and law enforcement agencies are on the hunt for Chinese nationals working on behalf of talent and research organizations that appear legitimate but that the FBI fears are vehicles for espionage on U.S. soil.
Alongside the Chinese-backed institutions with whom Chen and Zhou allegedly worked, one of the current points of focus for the FBI is the Thousand Talents Program, set up in 2008 by China’s central government. It offers monetary rewards for the brightest Chinese minds working abroad to bring their knowledge back to China.
“Our issue is when talent recruitment plans or programs are used to, in effect, lean on people, people who are recruited by a foreign nation to provide, for lack of a better term, intellectual property that otherwise is not allowed to be provided,” one senior intelligence official told Forbes.
“They’re not recruiting the best and the brightest, you know, out of the goodness of their hearts. They’re expecting something in return.” The official said that China had upwards of 200 talent recruitment programs, some of which were used for nefarious espionage operations, though many were legitimate. Most are controlled by the Central Committee of the Chinese communist party.
“It is a well-organized, centrally managed, well-funded effort on behalf of the Chinese government. This isn’t happening by accident.” The official pointed to guidance the FBI had sent to universities across the U.S. warning them about the Thousand Talents project.
Adam Meyers, vice president for intelligence at the cybersecurity company CrowdStrike, said his company had seen an uptick in “human-enabled access to conduct espionage.” “Either finding someone who works there and leveraging them to get access—or it’s possible they’re sending people in directly to get employment,” Meyers said.
But some see the unrelenting scrutiny of Chinese scientists across America as doing more harm than good. Peter Zeidenberg, a lawyer who has represented multiple Chinese Americans who’ve been investigated by U.S. law enforcement, told Forbes many had seen their lives turned upside down as a result of FBI probes.
“They’re victimizing them and driving them away. These are people who’ve done nothing,” Zeidenberg said. “They’ll execute search warrants, go through everything with a fine-tooth comb. But they’ve already truly traumatized the individual and terrorized them. It’s unbelievably frightening.”
“This began a few years ago and is just continuing, and if anything it’s ratcheting up.”
He gave the example of former Miami resident Chunzai Wang, a climate-change expert who was found guilty of illegally receiving funding from various Chinese initiatives while he was working for the National Oceanic & Atmospheric Administration. Those initiatives included the Changjiang Scholars and the Thousand Talents programs. Though he was sentenced to time served, he’s returned to his home country having been subjected to days of interrogation and his private property raided.
In the Ohio case, the government has already subpoenaed Apple to provide information on what iPhones and iPads Zhou was using. Zhou’s iPhones were seized upon his arrest at San Diego International Airport, when he was returning to the U.S. from China, a search warrant application obtained by Forbes revealed.
Beyond Ohio and Florida, at MD Anderson Cancer Center in Houston, anxiety within the Chinese community has peaked in recent months following an FBI raid on the medical facility and an investigation into two employees there, again a husband and wife. That came after the U.S. National Institutes of Health sent a letter to the facility saying five Asian scientists at MD Anderson had committed potentially serious breaches of its rules around disclosure of foreign ties and secrecy of peer reviews. Again, sources told Science magazine that the FBI was especially interested in anyone working for the Thousand Talents program.
Steven Pei, a doctor who’s been meeting with MD Anderson leadership in recent months, told Forbes of the deleterious impact the investigation was having on Chinese people at and around Anderson. “The espionage investigation has created so much confusion and anxiety in the Asian community in Houston,” Pei said.