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UMC chiefs indicted over alleged China fab investment

Staffers quit foundry then join it again as advisors

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UMC chairman Robert Tsao and vice-chairman John Hsuan have been formally accused by the Taiwanese authorities of making illegal investments in mainland Chinese chip-maker Hejian. Prosecutors also indicted Tzeng Tun-chian, the president of UMC's venture capital division.

Tsao and Hsuan have now quit their posts at UMC, the world's second-largest chip foundry, though both were immediately taken on as advisors to the board. In June 2005, Tsao told the company's shareholders he planned to leave the firm before 2007. Last month, he brought his departure forward to March 2006, but yesterday quit ahead of his indictment. UMC CEO Jackson Hu will assume Tsao's chairmanship.

The allegations made against Tsao, Hsuan and co. centre on claims they invested in Hejian. The Chinese foundry was founded by a number of ex-UMC executives in 2001. Tsao maintains he simply advised the founders on business matters, and UMC says it has entered into no deal with Hejian, either to provide it with funding or technology. In Taiwan it is unlawful to invest in any Chinese technology-related company without first winning the approval of the Taiwanese Government.

However, it has been claimed that Hejian staffers not only had access to UMC's intranet, but the company's fab incorporated UMC-patented technology, seemingly without protest from the Taiwanese company. It's alleged UMC tacitly licensed its technology to Hejian.

Investigators from Taiwan's Ministry of Justice raided UMC's HQ and the homes of executives in February seeking evidence to support these allegations.

UMC has said it would like to invest in Hejian, and in March 2005 put in place a scheme to put $110m into the company via the correct channels. Tsao had already said that UMC would be keen to acquire Hejian at some future time.

The UMC-Hejian case has yet to come to court, though Tsao and 23 other executives, including Hsuan and Hejian chairman J. H. Hsu, were last year named as defendants when the case is eventually heard by Taiwan's Hsinchu District Court.

Interestingly, yesterday's indictments did not include Hsu.

UMC yesterday dismissed the indictments because of their “purely political nature” - it believes Taiwan's actions are more about maintaining a tough line with the Chinese Government than punishing real wrongdoing. ®

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