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Boeing : U.S. Probes Failed Boeing Satellite Deal Backed By China

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01/11/2019 | 07:27pm EDT

By Brian Spegele and Kate O'Keeffe

The U.S. Securities and Exchange Commission and the Commerce Department are investigating Boeing Co.'s relationship with a satellite startup backed by a Chinese government-owned firm, following an article by The Wall Street Journal on the matter last month.

In a letter to the Los Angeles-based startup Global IP, the SEC requested that the company retain all documents about its work with Boeing and a number of other individuals and entities, including state-owned Chinese lender China Orient Asset Management Co.

The letter said the SEC believes the Los Angeles company possesses "documents and data that are relevant to a matter under investigation," and asked that it keep materials about Boeing's deal with the Chinese-backed entity.

The SEC letter was disclosed in a court filing on Jan. 4 by Umar Javed, one of Global IP's founders.

The court filing was part of litigation against a China Orient unit that corporate records show provided financing for a satellite that Global IP was buying from Boeing. Under U.S. export laws, American companies are effectively barred from selling satellites to China.

The letter provided no further details about the probe and Boeing declined to comment on it, saying in a statement that it takes rigorous measures to comply with U.S. regulations.

The startup also received inquiries about its Chinese financing from the Commerce Department, which issues export licenses, and from the interagency Committee on Foreign Investment in the U.S. -- known as CFIUS, which reviews foreign deals for national security concerns, according to a statement by Mr. Javed in the same court filing.

A person familiar with the matter confirmed the Commerce Department was investigating the deal.

The Treasury Department, which leads CFIUS, and the Commerce Department aren't permitted to comment on specific transactions.

Mr. Javed and co-founder Emil Youssefzadeh are suing a unit of Global IP's government-owned Chinese backer in California federal court. They allege the Chinese firm secretly took control of Global IP after the startup accepted around $200 million through a complex financing arrangement involving offshore firms. The founders say they told Boeing about their Chinese backing from the outset.

Boeing has declined to answer specific questions from the Journal about the Global IP deal.

Global IP has previously denied to the Journal that it was controlled by China Orient, which also has disputed the founders' allegations.

In the court filing Mr. Javed said he obtained the SEC's letter due to his status as a minority shareholder in Global IP. He is no longer involved in the company's day-to-day operations. A lawyer for Mr. Javed declined to provide details.

The SEC enforces laws that require public companies to maintain accurate records and truthfully disclose important information to shareholders. In the past, the agency has punished public companies over accounting records that didn't accurately reflect violations of export laws.

The SEC investigation, which is at a preliminary stage, doesn't mean the agency will bring a complaint against Boeing. The regulator sometimes starts investigations that are later closed with no formal action.

Utilizing the Chinese financing agreement, Global IP contracted Boeing to build the satellite that would beam internet coverage to sub-Saharan Africa. A concern among national security experts was that the satellite could be repurposed by China's government for military activities.

Boeing is the federal government's second-largest contractor after Lockheed Martin Corp., and following the Journal's report last month former and current government officials and lawmakers said they were surprised Boeing would engage in the Global IP deal if it knew of China's involvement.

The aerospace giant has said it works to protect U.S. national interests and that the Commerce Department issued the company a license to go ahead with the deal.

Days after the Journal's report in December, Boeing said it was scrapping the satellite project, citing nonpayment default by Global IP. Mr. Javed's filing also said the Commerce Department's Bureau of Industry and Security had revoked Boeing's export license.

Boeing referred questions on the license to the Commerce Department. Beijing-based China Orient didn't respond to a request for comment.

Dave Michaels contributed to this article.

Write to Brian Spegele at brian.spegele@wsj.com and Kate O'Keeffe at kathryn.okeeffe@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
BOEING COMPANY (THE) 10.91% 366 Delayed Quote.14.12%
BOEING COMPANY (THE) -2.83% 362.17 Delayed Quote.15.57%
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Financials ($)
Sales 2019 111 B
EBIT 2019 14 655 M
Net income 2019 12 495 M
Debt 2019 6 106 M
Yield 2019 2,17%
P/E ratio 2019 16,86
P/E ratio 2020 14,79
EV / Sales 2019 1,94x
EV / Sales 2020 1,81x
Capitalization 210 B
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Dennis A. Muilenburg Chairman, President & Chief Executive Officer
Jenette E. Ramos Senior Vice President-Supply Chain & Operations
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Gregory L. Hyslop CTO, Senior VP-Engineering, Test & Technology
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