So it's three layers of theft in the story. You've got the person stealing the intellectual property, You've got the people trying to set up a company based on the stolen intellectual property, and then you've got the Chinese government. And there is a parent fraud at each of those levels.
That's Bloomberg's Jordan Robertson. He and fellow reporter Drake Bennett spent months chasing an international scheme to make off with one of Coca Cola's most closely guarded secrets. And it's not the one you're probably thinking of. I'm west Kasova. That's today on the big Take, Drake. We all know Coca Cola famous League guards its recipe.
The Coca Cola formula is written on a tiny green rice. This grain of rice is inside a shell guarded by two primate crabs, which are inside of grandmother's purse. We're not going to tell you about formula is in it, but we might tell you what. It doesn't have no manic preservatives or artificial flavors.
But in this Business Week story that you and Jordan reported, you found a whole other kind of formula that Coke is really protective of. And for pretty good reason.
At the heart of the story is a technology that's all but invisible to most of us, but also ubiquitous and extraordinarily valuable. And it's this two micron thick polymer lining that goes inside every can of coke that the Coca Cola company.
Fills and sells.
And the reason you need that liner is because otherwise coke, which is this sugary, acidic brew, would devour the aluminum can that it's put into. You'd also have issues about the taste of these very minutely calibrated things like Topo Chico hard Seltzer being somehow corrupted as it sits on supermarket shelves. So it's a very important but very little known technology.
And developing those liners is really difficult.
Yes, there's this whole world of liners and membranes and coatings that basically cover all of the surfaces around us, whether it's a key on a keyboard or a touchscreen. There are special paints that protect bridges from corroding and salty air. There are special paints that keep stealth bombers stealthy. There are special paints that go on ships and kill all the barnacles that would otherwise totally cover those shiphulls.
There's a lot of really interesting technologies out of sight of most consumers, and can liners are a particularly tricky problem because it's got to not mess with the chemistry of the drink itself or the food. You know, there's also tuna can liners, soup can liners. But also these things have to be applied in seconds in these gigantic can factories that are producing you know, millions of cans
a day, so they get sprayed on. They have to drive perfectly in this perfect layer around these very irregularly shaped objects. So it's a real chemistry engineering problem and there's a lot of research and money that goes into developing it.
And as the world's biggest carbonated soft drink maker, Coke occupies a really unique position in this ecosystem. Coke is the king maker. One of the things that we found interesting is that, you know, Coke has to have a department that evaluates these technologies. Coke actually doesn't make these liners. You know, Coke evaluates these liners. Coke sets the standards for these liners, and then companies compete for their business.
You know what, Coting's company wouldn't want to be inside hundreds of millions of Coke cans.
And to that point, part of the reason and that this particular formulation we're talking about was so valuable is because there was a moment several years ago when research started coming out about this one ingredient that was ubiquitous in these liners, which was something called disciphonnel a or BPA, and there are these worries about the health effects of it. It seems to do things to your inderconsystem, might give you diabetes, might alter when kids go into puberty. So
countries and states started banning this ingredient. And BPA turns out to be an extremely valuable molecule for making these high tech liners, and so it was very difficult and very time consuming to figure out how to reformulate them without BPA. So a lot of what Coke was doing a few years ago was trying to figure out whether these new BPA free liners were okay to put in their products.
And at Coke Jordan, the person who was in charge of figuring out what kind of liner to use and what was the best formula was someone named Shannon Yo.
Shannon Yo was an employee of the Coca Cola company. She worked at their Atlanta headquarters. She is a chemist chemical engineer. She understands complex chemical molecules, and her job was to help evaluate the BPA free codings that Coke's suppliers were developing. She alone didn't get to decide whether those codings won the contract with Coke or not, but she occupied a very important position in that supply chain because she got to decide which of these companies' codings
went up the chain for further review. So she had a lot of power, even though she was not an executive. There's no indication she managed anybody. You know, she had this innocuous title. Shannon Yo's title was principal engineer in the Global Research Division. She's not an executive, she's not sea level like, She's not somebody you would think would
have this power. She was kind of an individual contributor, if you will, and she had a lot of say over whether these companies BPA free codings would be successful or not.
She was born and raised in China, went to college there, came to the US for her graduate studies, got a PhD in materials chemistry, and had a pretty impressive career. She invented some pretty cool sort of abrasive technologies, some coatings, this one laser proof coating that went on safety goggles.
She was hired in twenty twelve by Coke in Atlanta to be this kind of gatekeeper to their scientific and regulatory Affairs committee, and as it turns out, that's an extremely powerful perch because Coke is such an important company for these coding suppliers. Pretty early on, if not immediately, the relationship between Coke and those suppliers' changes. She starts demanding a lot more information than those companies had previously had to give Coke, very specific recipe type information about
exactly what went into these codings. So she wasn't interested just in how these coatings performed when they were in a Coke can, which is her job, but these other sort of questions that would be more relevant if, for example, you're trying to create your own codings. The relationship got bad enough that these very senior executives at these coding companies were having to intervene and figure out how to
manage this relationship. So not only that, but she was extremely abrasive in her dealings with these coding companies and basically would strong arm them into sending her these extremely valuable proprietary formulas and strong armed them into signing these special non disclosure agreements that covered just her, so which
is extremely unusual. Over time, she developed this collection of these formulas and basically her computer at Coke was the only place on the planet where all of these companies extremely highly protected proprietary information co existed and she.
Had sole control over all of.
These Some of these decisions did involve a supervisor, but it seems like she was running her own shop within Coke, using Coke's leverage as this giant partner for these Codings companies.
Jordan, why was she collecting all of these codings into kind of a personal library.
You could make the argument, and Shannon Yo did make this argument that she needed to know exactly what was in these formulations because they were going to go into products that were going to be consumed by people, and these were novel chemistries involved here. These Codings companies we learned, you know, through the reporting, they already shared a lot of information with Coke. They really very badly wanted Coke to use their products.
One answer to that question is that the whole time she was at Coke taking this information, she was also thinking and talking to partners about going off on her own and starting her own coding company in China. What emerges she has an aunt in China who seems to be maybe the person who came up with this idea, but very much a partner in it, and their plan is There are these Chinese government programs, provincial level programs, national level programs. The best known program is called the
Thousand Talents Program. It's a national program and the purported purpose of it is to incentivize Chinese scientists, Chinese engineers who have gone abroad to get an education to work at tech firms, engineering firms, to get those people to come back to China and start companies there to bring back some of this knowledge and experience and help China's
economy grow. What critics of the program, including a lot of folks in the FBI and the American counterintelligence community, what those critics would say is that the other thing these programs do is they basically work as bounties to get people to steal ip from non Chinese companies and
use those as the crown jewels of Chinese competitors. Shannon Yo and her aunt, Fan Hung Mei were very interested in getting that money to start their codings company in China, and so a lot of their correspondence while Shannon is at Coke, while she is taking this material that belongs to Coke's partners, they're talking about getting thousand talents program money and how they're going to set up this company to compete against the codings companies that Coke works with.
After the break, Shannon Yo gets creative with her resume.
Copy in the one.
That there's billions of dollars available in China for all kinds of investment opportunities for companies, and this was central to the desired creation of a Chinese you know, coding's company. So essentially, the first order of business was for Shannon Yo and her partners in China to create applications for these government programs to convince both the national and the provincial governments to give her and her partners potentially millions of dollars.
It is exactly the sort of industry that these grants are meant for, in that it's a big market. There isn't a Chinese company making these codings, and they all have to buy them from overseas, from these giant global corporations and so her purport adventure would be filling this need.
Shannon Yo and her partners knew that they had something really valuable, which was a market that was difficult to penetrate, difficult to replicate, and somebody who now had access to the actual chemistries, the most cutting edge chemistries for some of the world's biggest coding companies. She had that and her job. The first order of business was to pitch the Chinese government at the national and the provincial level.
Shannon's aunt connects her pretty early on in this process with a gentleman named lu Juan Chen who works at a Chinese chemical company. He becomes their kind of guide to not only setting up the new company, but also getting as much money as possible out of the Chinese government for that purpose. And one of the things he seems to specialize in is application fraud. Basically, some of what he does is these kind of tweaks. You know, he wants me to take a flattering photograph of herself
for the application other things. Basically like he asks her of say that she's the chief technology officer of a fortune five hundred company, which is very very far from what she is. He crafts this fake patent agreement that would give the liner technology that Coke uses to the Chinese company he works for and the company that would be partnering with the new Chinese company. But it's not only fraudulent, it's nonsensical because these aren't really Cokes formulas
in the first place to give. So this kind of bundle of true and made up stuff becomes the application for these programs, and it's successful. A combination of Shannon's real resume and the kind of wild exaggerations get them to sail through the process and they get not only the provincial money but the national money, and things kind of proceed from there.
And you write that Shannon Yo was awarded a total of five million yuan in grants about seven hundred and twenty thousand US dollars, and the company was also awarded grants, and she believed about eight hundred thousand US dollars worth of that was paid up front.
So meanwhile, back at her day job at Coke, things are not going great. One of the things about Shannon that's really striking is that, especially for someone who is trying to do something under the table at her job, is that all of her co workers remember her as this extremely loud, fairly abrasive personality. So everyone who worked with her kind of had these stories about how loud she was on the phone, how clearly unpleasant all the conversations she had with these coding companies always were.
She was basically unforgettable.
At the same time, she's basically trying to spirit away this stuff that was the proprietory information of these partners of Cokes. So eventually at Coke, this starts to catch up with her, and she's laid off and it's part of this larger restructuring, but she's laid off and then realizes that she's going to have to take this ip
with her. There's this period of time before she leaves Coke, but after she knows she's going to have to leave Coke, where she keeps trying to get this stuff off of the Coke system onto various hard drives, and she's thwarted up to a point by these security measures that Coke has sort of put in place. She eventually gets around them. The way she does it is not particularly high tech. She just has these files open on her work computer and takes pictures of them with her phone.
Jordan what he'd Coke say about Shannon Yo and all of this.
Coke declined to comment about detailed questions about this case.
And she immediately gets a job at another chemical company that supplies Coke called Eastman Chemical.
Unfortunately for Shannon, she's no longer in the can coatings business. She's now in the food packaging side of the house. The reason that's important is as unforgettable as Shannon was at Coke, she almost immediately makes herself unforgettable and Eastman as well because she's on the food packaging side of the house. But she's constantly wandering around and poking her nose into the can side of the house where she has no business working. Her boss has noticed this. It's
just kind of odd behavior. There are some complaints from team members about her personality. So again, she's not starting on a great footing, but she was hired as an expert in some of these chemistries.
And these former partners of Cokes, when they get wind that she's moved to Eastman, immediately fire off these panicked letters to Eastman, reminding the company that Shannon cannot use any of the proprietary information that she had strong armed them into giving her. When she was at Coke, so there's this sense that her reputation comes along with her.
It's the worst way to start a new job. I mean, the people she worked with at Coke are now all calling Eastman and telling them like, this is a very challenging person to work with and we don't want to work with her. She's not going to be part of any of our accounts. But yet Eastman continued to send her on assignments. But as this is happening, the project in China is kind of coming undone a little bit.
The grant money from the Chinese government was approved, but not at the levels that Shannon and her partners in China expected it to be, and that all kinds of divisions and frictions start happening between Shannon and her partners at China. So she's still trying to salvage it though. She's still trying to hit the finish line get the money into her account while navigating this new job where she's just not where she feels she needs to be. So Shannon gets approved for a ten day trip to
China for her day job for Eastman. On that trip, that's when Shannon Yo signs the contract that she needs to to get her money and get her Chinese business up and running. US notice because she's gone for a month, she's been authorized a trip for under two weeks, she's gone for several weeks. After that, they start raising questions about what she's doing in China, and then her new bosses at Eastman really start to have some concerns about what this employee is doing. But she still has her job.
She's not fired over it. In fact, she's questioned about it, and that's when things for Shannon really start to take a turn.
What gets her in trouble at Eastman isn't really the intellectual property issues so much as there are these vague concerns about her taking this long trip and what's she doing, and when they're raised with her, she basically gets extraordinarily angry but rates her supervisor.
And then there's this.
Meeting to kind of like check in with Shannon, how's she doing in her first year? It goes extremely badly, and this HR representative, as HR representatives do, kind of tries the cool things down and says, Shannon, why don't you go work from home for the US to the day. And Shannon leaves the building and instead of going home, she goes to the executive offices of Eastman, which is
a fourteen thousand person company. She badges into that building and goes looking for her supervisor supervisor so she can presumably make the case to that person, can't find them, and then decides to just take her case to the chief technology officer of the company. Is informed that that person is in a meeting, tries to interrupt the meeting, and finally is told to leave the building by security, and then does.
She's wandering the executive building for two hours, knocking on doors, looking for the CTO, looking for her boss's boss, like trying to find anybody she could make her case to.
I mean, she's making a spectacle of herself, which I mean again, it's like this person that's sort of doing this thing that relies very much on sort of like stealth and not making a spectacle of herself, and yet she on some level seems not to be able to help herself.
And Shannon Yo had so many moments. There are multiple moments in her story where she could have done a different thing and we wouldn't be having this conversation. This was a moment where she could have done a very easy other thing and gone home. They weren't going to fire Shannon Yoe over this China trip that went weeks longer than it should have where she was unaccounted for. They weren't even going to fire her for her outbursts
at her supervisor. Like apparently she was valued enough for whatever she brought to the table that she would still have her job. But her decision to leave that contentious HR meeting march over to the executive offices, wander the halls for two hours looking for her boss's boss's bosses to make her case. That's what did her in right, And it was at that point that Eastman HR decided, we need to fire her. We need to fire her immediately.
Let's lock down her accounts, and let's get this done with Drake.
What did Eastman say about Shan and Yoe.
Eastman didn't respond to detailed questions about the case, but did issue a statement that they take intellectual property theft seriously. One thing that Eastman did that Coke had not done, which proves important, is that at this point the IT
department starts to keep tabs on her. So she goes home and then Eastman is able to see that she plugs an external hard drive into her work computer and puts something on there, and so when she goes in the next day to be fired, they make a point of asking for that removable storage device, which after some haming and hawing, she agrees to give them. And that removable storage device, when examined, turns out to have all of these can Liner formulas on it.
And at this.
Point Eastman's security department, which is run by a former FBI agent, decides to involve law enforcement.
When we come back, the scheme starts to unravel, so Eastman calls in the FBI. What happens.
Then Shannon Yo has been fired, and so now she has all sorts of time to devote to her new Lining's venture in China, and so she takes a couple more trips, keeps trying to figure out why she hasn't seen more of the grant money. And then at the same time the FBI is starting to take a look at this. They get search warrants on the external hard
drive that Shannon had to return to Eastman. They get a search horn on her company phone that she also returned to Eastman, and what they find on there are these formulas, They find photographs on her phone that she took of this specialized lab equipment in the Eastman labs, and so the FBI starts piecing together what she's been doing.
When Eastman seesed that hard drive, they were looking for Eastman intellectual property. They were not investigating anything that they suspected to be a corporate espionage, you know. Matter they were looking for, did Shannon Yo take any of are intellectual property? But what they found were folders upon folders of what seemed to be pretty valuable chemical formulas with names of other chemical companies, and that's what they gave to the FBI. And what the FBI was doing is
all of this was happening. The FBI was taking that data to those companies and saying, what is this?
Is this valuable?
Those companies were coming back and saying, absolutely, those are our trade secrets. Nobody should have that information. So at that point the FBI knew shan and Yo has taken some very valuable intellectual property and is also going overseas. And as they reviewed her communications, they started to piece together, oh, this was about creating a company in China.
In February of twenty nineteen, chen and Yo was arrested by the FBI.
She was taken in for an interview with the FBI in their Grand Rapids, Michigan office. Agreeing to give an interview is it's a pretty risky thing, right because anything you say that's not true, you could be criminally charged with. And Shannon begins with a very adamant denial that she she didn't do anything wrong, she didn't share any information, she doesn't know why she's there.
And you obtained the recording of this FBI interview with Shannon Yo. Here's part of it.
How are they going to get into this?
That's that's the reason.
Okay.
I try to bring the bringing them mac let in basic help and build a factory. But because they don't have as partise, I thought I would be able to help revite some consultant, okay, because I do know all the not just the secret but in general how to build a factory things have.
You've been working with this stuff.
For a long time.
That's trying.
But I have never had any intention to develop anything other than just help them to set to said.
Jinhong has an intention to develop? Can I going? Yes?
They have They have to write that in order to get bunding for the government. If they say they just as a recitable night lie that they're now going to get bombing, and so that's the reason.
They write this way.
But as the FBI agents kind of lay out this evidence that they had collected over the preceding months, you know, it just becomes very clear that she wasn't telling the truth and that they had the goods on her, and that interview winds up proving really pivotal because they catch her in kind of lie after lie after lie. She didn't deny that she took the information. She just said she didn't share it with anybody.
But I never shared this with anybody, but you took it.
That's the problem, okay, And that's where we're at right now. Okay, their stuff was on your device, Okay, Okay.
Ultimately that doesn't matter for the charges against her, because what the emails and the messages showed was the intent to steal and the intent to use this data to create this Chinese company.
Jordan Drake, we're hearing you recount all of these details about Shan and Yo and her work life and what she was trying to do in China. How do you know all of these details that you've reported.
Most of what we know about this case comes through transcripts of Shannanyo's trial and also you know voluminous communications records that were submitted as evidence in her trial. These are really lengthy we chat, voice message and text message exchanges that Shannanio had with her aunt and her Chinese business partners.
The thing is, okay, I do not have any path for the for PP in that cold team though.
No, but you do have you had it on your heart drive.
You will get and put it on your hard drive directly.
I have you signed the EGE award, that's the patent that is public available. There's some messages in there that are pretty damned, but I'll do it.
You did not transfer the trade secrets, is what you're telling. But you have the trade secrets that you are not supposed to have.
Okay, that is a problem.
You know.
It's hundreds and hundreds of pages of documents that Drake and I went through. There's also a two hour interrogation video when Shannon Yo is interviewed by the FBI, which we've also obtained.
Joe says, unlike other TTP winners who are loss overseas. She is doing well in the United States.
She is the one taking the rest during the current and friendly period between US Chinese relations.
And she won't give her technology away easily until she sees money.
For ree as a voiceman.
Let you think about that, well, I d not do it, okay, and the ID now received any money from Cardinal worry on the is.
If all you read is the press release about these cases, what you'll see is on IP theft case involving China, Like there are lots of those. But if you read the transcripts and look at the evidence, that's when those documents lay out this fuller picture of not just an IP theft involved in China, but of multiple layers of scamming and fraud and deceit.
Shannon went on trial in Tennessee in April twenty twenty one. She was convicted of wire fraud, possessing and conspiring to steal trade secrets, and economic espionage, and she was sentenced to fourteen years in federal prison and she's serving it in Aliceville in Alabama. I actually spoke with her by phone several months ago. I sent her a letter. She got right back to me. Actually and we had a fifteen minute phone conversation, which is the longest you're allowed
to have in federal prison. And she argued that she was innocent and that basically her case was an example of a kind of xenophobic overreach, that basically she was prosecuted because she was Chinese. She's a Chinese scientist. The prosecution had confused the jury about some of these technologies.
And we made plans to talk again.
But the next day, as she mentioned to me, she was speaking with her lawyer, and I think her lawyer suggested we not have any further conversations because she didn't call back. We had an email exchange more recently where she made some of the same arguments, but we weren't able to speak again.
And Jordan therey is one more twist to this story.
Yeah, as we looked into this case, what we found was that a central question was what was ever done?
Did she get paid?
What was revealed was that as this money just was increasingly not hitting her account, she was not getting paid in China, she got very suspicious of her partners there. She believed that they were withholding on her. She believed they were lying to her. In fact, her Chinese partners did receive about eight hundred thousand US dollars in kind of advance money to build this factory. That was corporate money that they received from the government in China, and
she suspected that she was being scammed as well. And ultimately what happened before she was arrested, she became increasing a hostile to her Chinese business partners, accusing them of lying, accusing them of stealing from her, and eventually they decide to just walk away, and Shannon Yo walks away with little more than some kind of token payments that she was given.
The context for this is that these grant programs that the Chinese government has used to try to jumpstart everything from chip production to electric vehicle manufacturing our rife with fraud.
There are lots of cases of people basically.
Taking the money and running, which is something that happens in the United States as well with grant programs. And so there's a very real possibility and some evidence that suggests that there never really was a plan to start this business, which makes a certain kind of sense. I mean, it would have been quite a volatile experience to go into business with Shan and Yo, and it would have been hard to set up this business and compete in
this global industry. It might have just been easier to take the eight hundred thousand dollars and call it a day.
And when she doesn't see any money except some token amounts that were given to her, you know, she becomes deeply suspicious and posits at one point like maybe I'm the mark here.
And the irony in that, of course, is that there was another victim in this scam. If there never was a plan to do anything with this ip, then basically the Chinese government itself was being ripped off, just like the companies, and just like potentially Shannon herself.
Did you try to reach Shanan Yo's and and this business partner in China?
We tried multiple ways to reach En and Yo's aunt as well as lu Xiang Chen in China through emails, phone calls, faxes, and we weren't able to connect with either of them.
What are we to take away from this?
What I think this case shows is that if what the Chinese government has tried to do is create an incentive system for bringing this valuable information back to China, it's one that doesn't work perfectly. And I think human beings, when you incentivize them to do things, don't always do exactly the thing you want them to do. And in this case, sometimes what they might do is simply take the money you're giving them to do something and just run away.
I mean, I think my takeaway is very similar, which is we got a really incredible and unusually detailed view into what the negotiations look like between people who are stealing intellectual property to take advantage of these Chinese grant programs. The way these grant programs are portrayed typically are as this kind of monolith, this machine for stealing intellectual property, which, according to many national security officials, you know it is.
And this case shows that those incentives are very very powerful. But what this case also shows is that it's equally powerful to just not do anything at all if you can get your hands on even just a little bit of that money. A little bit of that money is life changing for many people, So you don't necessarily have to create the world beating competitor to the American technology company. You might want to just take a little bit of that money off the table for yourself.
Another way to put it is just that if you set up a system to incentivize people to do something, whatever it is, including steel ip.
People are going to figure out ways to work that system.
Drake Jordan, thanks so much for coming.
On the show. Thanks a lotles, Thank you for interest.
Thanks for listening to us here at The Big Take. It's a daily pod cast from Bloomberg and iHeartRadio. For more shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or wherever you listen, and we'd love to hear from you. Email us questions or comments to Big Take at Bloomberg dot net. The supervising producer of The Big Take is Vicky Virgalina. Our senior producer is Katherine Fink. Rebecca Shasson is our producer. Our associate producer is Sam Gebauer, with
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