"First loyalties lie to Atari first!"


(This was originally created as my own reference to help me understand the order of events. This timeline was expanded to include news events outside of the FBI release, which may put events into perspective. Skip to May, 1988 to start seeing FBI summaries.)

April 26, 1987
Atari initiated a plan to acquire the retail stores of Federated. After the video game crash of 1983, Atari no longer enjoyed the retailer network in the US that they had in the early 80s. In an October 1985 Computer Shopper, writer Wynn Rostek observed that Atari's own actions appear to have alienated both the computer dealers as well as the mass merchants.

By acquiring a retailer, Atari believed that they could improve the sales of their computers in the United States, which have lagged well behind European sales. This is something that Atari wanted to fix.

Source: 970 F. 2d 641, US 9th Circuit Court of Appeals, Atari Corporation v. [Federated]
Source: ST Report, September 18, 1992 "What ever happened to 'Power without the Price'?"
Source: Pc-History: Atari 800
Source: LA Times "Atari to Acquire Federated Group for $67.3 Million : Deal Would Give Video Pioneer Access to a Retail Network"

May 26, 1987
Federated reported losses of $5.2 million during its previous fisical year, from March 2, 1986 to March 1,1987.

Source: LA Times, "Federated Group Posts $5.2-Million Loss for the Year"

June 30, 1987
Atari reviewed audited SEC forms for Federated. They already knew that Federated was losing money, so Pratt (Atari's Chief Financial Officer) tended to discount their numbers, knowing that the accounting was going to be pretty aggressive. Atari believed that once it owned the retailer, it could turn it around and bring it into profitability. They beleived part of the solution was to slow their recent expansion drive and gaining from more advertising and the addition of new Atari products.

Federated reports losses of $895,000 from March 2nd to May 31st of the year.

Source: 970 F. 2d 641, US 9th Circuit Court of Appeals, Atari Corporation v. [Federated]
Source: Z*Magazine, 28-Aug-87 "ZMAG ATARI NEWS UPDATE", reprint of "ATARI CORP. TO BUY CHAIN" from Associated Press.

August 23, 1987
Despite questions about financial information provided by Federated, and conclusions by Pratt (again, Atari's CFO) that Federated's balance sheet needed between $14 and $20 million in adjustments, Atari entered into an agreement to purchase Federated for $6.25 cash per share. Pratt believes the offer was still $2.15 too high. The agreement to be completed by September 25th.

Source: PR Newswire, "Atari commences cash tender offer of Federated Group shares"
Source: PR Newswire, "Atari and Federated Group announce extension."
Source: 970 F. 2d 641, US 9th Circuit Court of Appeals, Atari Corporation v. [Federated]

August 25, 1987
The LA times gives Atari's CEO a glowing review. "Industry observers on Monday called Atari's purchase of Federated's 67 stores a master stroke that will dramatically expand Atari's distribution for its well-regarded, inexpensive line of personal computers while enhancing Federated's ability to compete."

Jack Tramiel, CEO of Atari, said that his purchase of Federated was in-line with his goal of creating an international electronics company. The next target on his list is a semiconductor company.

Source: LA Times "Tramiel Can Now Export Price Revolution" August 25,1987

September 2, 1988
Atari now owns 61% of outstanding shares in Federated.

Source: PR Newswire, "61% of Federated Shares tendered to Atari"

September 25, 1987
Atari's tender offer for Federated shares has been extended to September 28th.

Source: PR Newswire, "Atari extends tender offer for shares of Federated Group"

September 27, 1987
Pratt determines that Federated's SEC statements contained untrue statements and believed that Atari had been induced to purchase Federated by fraudulent information. Atari wanted 45 more days to audit Federated. Federated refused and because Federated was almost sure to go into bankruptcy (perhaps due in part to what Atari's investigation had revealed), and they threatened to sue Atari if they didn't close the deal.

Source: 970 F. 2d 641, US 9th Circuit Court of Appeals, Atari Corporation v. [Federated]

September 28, 1987
Atari and Federated announce a second extention until September 29th for Atari's offer to purchase Federated. They claimed that the extra time was needed for "bank lenders to complete documentation for the closing."

Source: PR Newswire, "Atari and Federated GRoup announce extension"

September 29, 1987
A third extension is announced, with a closing date of October 1st.

Source: PR Newswire, "Atari, Federated announce third extension of Atari's tender offer"

October 1, 1987
A fourth extension is announced, with a closing date of October 2nd.

Source: PR Newswire, "Atari, Federated announce further extension of Atari's tender offer"

October 4, 1987
Atari announced that it closed its tender offer for all outstanding shares of Federated.

Source: PR Newswire, "Atari announces closing of tender offer for Federated Group"

October 5, 1987
At that point, it was believed that Federated needed about $30 million in adjustments. Federated's chairman, Wilfred Schwartz, proposed a complicated deal where Atari effectively bet that if additional problems are found, up to $5 million would be reduced from Federated's purchase price of $67 million. (The deal is slightly more complicated, and at the time was not public knowledge. Refer to the court documents for full details.) Atari accepted the bet. This date is also listed as the actual closing date for the Federated deal.

Source: 970 F. 2d 641, US 9th Circuit Court of Appeals, Atari Corporation v. [Federated]

November 8, 1987
Atari purchases $32 million of Federated's outstanding bank debt.

Source: PR Newsire, "Atari Corporation purchases Federated Group's bank debt"

October-December, 1987
Now under Atari's control, Federated's operations created losses of $8.3 million dollars during the last three months of 1987.

Source: LA Times, Business, Earnings, "Atari Corp. reported a 56.5% gain..." March 03,1988

February 15, 1988
The results of the audit revealed the need for $43 million in adjustments (from a purchase price of $67 million), far beyond what Atari predicted. Atari's CFO stated they would never have agreed to go forward with the deal, had they of known the true condition of Federated.

Source: 970 F. 2d 641, US 9th Circuit Court of Appeals, Atari Corporation v. [Federated]

March 3, 1988
Atari expects that Federated's losses will subside, and should break-even for the year.

Source: LA Times, Business, Earnings, "Atari Corp. reported a 56.5% gain..." March 03,1988

March 15, 1988
Atari sues Micron Technologies (a U.S. based DRAM manufacturer) over chip deal. Filed Monday (14th) in Federal District Court in San Jose. Atari said it had reached an agreement on the telephone to buy three million memory chips from Micron for $3.75 apiece. Atari said, however, that Micron later broke the agreement and asked for a new, substantially higher price. The suit seeks unspecified damages for breach of contract, bad faith and violation of antitrust laws.

"On the spot market, prices for 256K dynamic RAM's, the chips Atari was trying to buy, have doubled in the last few months, to between $4 and $7. Some computer makers are passing on the cost increases to customers. Others, unable to obtain chips, are slowing their production and delaying introduction of new products."

Atari claims that Micron presured the US Government to reach a trade agreement with Japan on DRAM supply, and then exploited the resulting shortage in the United States. Micron and Texas instruments are the only surviving US DRAM manufacturers who sell to outside companies.

Atari claimed their damages would depend on how quickly Micron supplies the chips, and at what price. They mention a quantity of three million chips, which could be used to produce 180,000 computers with 512k of memory.

SOURCE: NY Times, March 15,1988, "Atari is Suing Micron Over Prices of Chips"

March 28, 1988
Jack Tramiel (CEO of Atari) says the DRAM shortage is an artificial creation of the Japanese and US governments, and blames Congress as well as political pressures from the US semiconductor manufacturers for the problems. He says that DRAM manufacturing capacity exists to meet worldwide needs and that the trade agreement is what prevents demand from being met.

COMMENTARY: It is important to understand this statement. Basically, what he is saying is that supply of DRAMS is enough to meet demand, and nobody should be running into a problems with obtaining parts or outrageous prices. But trade agreements between the US and Japanese government prevent supply from reaching the United States and create artificial scarcity in the United States. So there should be excess supply in Japan, as well as any other country which Japan can still export to on favorable terms.

Generally, very large US based computer manufacturers would still be safe. The smaller players (upstart US based computer manufacturers, or third party component suppliers, such as memory upgrade cards) would feel the results of this. Sun Microsystems was one of those companies who would complain loudly about the shortage. And companies with manufacturing plants outside of the US (which Atari is one) would be insulated from the impact of US/Japanese trade restrictions on DRAMs.

SOURCE: New York Times, November 16,1989 "Sun and Unisys Will Not Join Chip Venture"
SOURCE: InfoWorld, March 28,1988 "Intel Announces Plans to Sell Micron's Dynamic RAM Chips"

April, 1988
In February, Atari discovered that they had paid too much for Federated's assets. If it was not know by then, at this time, they should be aware that the retailer isn't going to be easy to turn around. It is bleeding a significant amount of cash in its ongoing operations. Despite their actions to date, Federated posted a loss of $9.4 million in operations for the first 3 months of the year.

Source: STart Magazine, Vol 4. Number 2, September 1989, Page 11.

April 15, 1988
Atari ammended its complaint against Micron Technologies to add claims that Micron also violated California's unfair business practice laws.

SOURCE: PR Newswire, April 15,1988 "Atari not Micron's only victim."

May, 1988
Sam Tramiel took on the role of CEO of Atari (replacing his father, Jack Tramiel). Sam Tramiel would continue as president, and Jack Tramiel would continue as chairman.

COMMENTARY: General discussion among Atari fans is that this was the point where day-to-day control of Atari was handed down from Jack Tramiel over to his son, Sam Tramiel. I have read numerous message board postings and have had private converstaions with those who believe that Sam was cause of many of Atari's woes. This may or may not be true, I can't say. At this point, it looks like the elements for Atari's second great fall are already in place.

SOURCE: SEC filing: Atari Corp of DEF 14A for 6/5/95 (Definitive Proxy Solicitation Material)

May, 1988
At this point, the flow of information from the FBI documents begins.

Source [an informant to the FBI who is apparently an Atari employee] remembers the first DRAM shipment arriving in 1988 was sold to Sun Micro Systems in Milpitas, CA. Source was told to deliver this shipment by [redacted]. [redacted] told Source to leave all [redacted] including his [redacted] and to take [redacted] which had an Atari logo on them. When Source delivered the Integrated Circuits, [redacted] cashier's check from Sun Microsystems to deliver to Atari, and the payee's name was left blank.

Source claims that since May, special shipments have been arriving about once a week. Because of the special circumstances under which these arrivals were handled, Source has always felt that something was wrong with them. When he [redacted], he appeared nervous. He also made the statement that if anything ever happened, his [redacted] appear on any of the paper work.

COMMENTARY: It doesn't seem too much of a stretch to see that "Sun Micro Systems" almost certainly refers to "Sun Microsystems", the UNIX workstation manufacturer. It also fits with the reference I made to Sun Microsystems in the March 28,1988 entry, which comes from the New York Times.

Various bits of information will be redacted from the FBI documents. Usually, they include the identity of a person or specific company-related information. Sometimes, you can figure out what is missing by the context. At other times, it will be completely mysterious. I am thankful, at least, that they chose to redact small pieces of information rather than entire paragraphs.

SOURCE: FBI Case 87A-SF-40454, Page 25

May 2, 1988
Source provided shipping declaration showing 322,795 PCB kits to Styra on May 2,1988

COMMENTARY: "Styra" was the apparent destination for DRAMs on a number of shipping forms. Styra was a subsidary of Atari. It may have played a role as an apparent manufacturing operation. But all that Styra was known to be capable of doing was designing chips.

Source provided sign-in register dated May 2,1988 showing signatures of individuals from Sun Micro Systems.

SOURCE: FBI Case 87A-SF-40454, Page 26

June, 1988
Source claims shipment of DRAMS arrived in cartons marked software, stacked in the back of a large container that came in from the Port of Oakland.

SOURCE: FBI Case 87A-SF-40454, Page 16

June, 1988
Atari Corp. could be part of the first Soviet joint venture with a Western computer company, according to a managing director of Atari in Germany. In 1987, Atari sold a record 100,000 computers to the Eastern bloc, including 4,600 8-bit units to East Germany and 10,500 to Czechoslovakia.

SOURCE: Antic Magazine, Volume 7, Number 2, June 1988, Page 5 "Late-Breaking Atari News"

June 14, 1988
Atari Corporation said it had reached a settlement with Micron Technology in its recent lawsuit over DRAM prices. Terms of the settlement were not disclosed.

SOURCE: New York Times June 14,1988 "COMPANY NEWS; Atari and Micron"

June 16, 1988
Source provided shipping declaration showing shipment to Styra of 5,000 TI kits.

SOURCE: FBI Case 87A-SF-40454, Page 26

June 23, 1988
Atari is reported to want to enter the DRAM business with National Semiconductor. So far, National will make no commitment.

SOURCE: New Scientist Magazine, Jun 23,1988 "Sunrise industries face progressive memory loss"

August 10, 1988
Source claims 12,985 chips sold to "Amor" at Koral International.

SOURCE: FBI Case 87A-SF-40454, Page 12

Source provided shipping declaration showing shipment to Styra of 156,109 parts of part number [redacted].

SOURCE: FBI Case 87A-SF-40454, Page 26

August 18, 1988
Source claims shipment for Styra sold to be delivered to Koral. 7 cartons.

SOURCE: FBI Case 87A-SF-40454, Page 12

August 22, 1988
Source claims shipment for Styra sold to Koral International. 74761 DRAMs?

SOURCE: FBI Case 87A-SF-40454, Page 12

August 24, 1988
Source claims shipment for Styra sold to Koral International. (signed in as "NSC") 10,000 chips

SOURCE: FBI Case 87A-SF-40454, Page 12

Source provided shipping declaration showing shipment to Styra/Koral for 10,000 of part number [redacted].

SOURCE: FBI Case 87A-SF-40454, Page 26

August 30, 1988
Atari sues Federated's former executives/owners, accounting firm, and investment baking firm for securies fraud, RICO violations, common fraud, misrepresentation, and malpractice. Atari seeks at least $43 million in compensation. Editor of PC Newsletter calls the drain from Federated "pretty severe".

Source: 970 F. 2d 641, US 9th Circuit Court of Appeals, Atari Corporation v. [Federated]
Source: LA Times August 30,1988 "Atari Sues Federated Founder, Others; Says Assets Overvalued"
Source: The Southern Business Economic Journal, Volume 22, Number 4, July 1999

September 2, 1988
Source claims shipment to Classic Performance (unusual because it is an East Coast company). 100,000 ICs for $1.5M. When they pick up integrated circuits, they check the boxes in at the airport.

SOURCE: FBI Case 87A-SF-40454, Page 12

September 8, 1988
The very first informant approaches the FBI. Confidential Source, an employee of Atari Corporation for [redacted] years. He reports: Since [redacted] of this year, shipments of ICs were coming into the Atari warehouse from their overseas location. 256K DRAMS, arriving in software boxes rather than marked as ICs. Told to place in special room, counted, told to cut off all Atari labels. Sold to other companies. They sign in under various names. Shipping declaration made out to Styra. Staff also told not to mix up the ICs shipped in from overseas with ICs being stored by Atari for local use.

SOURCE: FBI Case 87A-SF-40454, Page 24

On January 19,1989, source provided documentation dated September 8,1988, concerning a shipment of 1Mbit DRAMS from Japan to the US. One [redacted] count indicates 15,000 pieces while a different [redacted] count put the total at 150,000.

SOURCE: FBI Case 87A-SF-40454, Page 39

September 9, 1988
The FBI Special Agent (who communicated with the informant the previous day) writes a memo to Special Agent in Charge of the San Francisco FBI (where they are based out of). The Special Agent requests that a new case be opened (category 87a - Interstate Transportation of Stolen Property) and assigned to them.

SOURCE: FBI Case 87A-SF-40454, Page 10

Source provided a list of dates, document numbers, destinations, and individuals associated with shipments of ICs which had arrived at Atari.

SOURCE: FBI Case 87A-SF-40454, Page 12

Source dishes the dirt on Koral International Corporation, who they say acts as a "go between" for companies and manufacturers. "They have a reputation for having no scruples and are intent on making money regardless of whatever sleazy transactions are necessary."

COMMENTARY: It is clear that the source has absolutely no love for Koral. The view that they share with the FBI is absolutely awful. But as far as the story in concerned, Koral doesn't appear to be a name that you need to concentrate on, other than some recorded sales.

SOURCE: FBI Case 87A-SF-40454, Page 13

Source says shipment of 1Mbit DRAMS arrived at Atari (390 Caribbean). There were already 300,000 Fujitsu DRAMS in the special room. The parts were labeled [redacted]. Source heard [redacted] who formerly worked at National Semiconductor and who began working at Atari in June and appears to be in [redacted] the [redacted] DRAMS, state that "[redcated] said not to tell you guys what's going on." [redacted] further stated that Atari was paying their taxes on the incoming shipments, and that they were not violating any laws, and it was only a question of business ethics. Source further stated that [redacted] every single thing concerning the transactions. [redacted] did [redacted] from the special storage room except for the August and September files.

SOURCE: FBI Case 87A-SF-40454, Page 14

September 12, 1988
FBI starts communicating with US Customs regarding the matter.

SOURCE: FBI Case 87A-SF-40454, Page 15

September ??, 1988
Source claims that 256K drams arrived in Motorola boxes. The DRAMS were Samsung chips, delivered by Teddy Bear Express. The shipments usually arrive with a packing slip and an invoice, but the invoices are not specific. They normally state the contents in detail, for example, "five cartons of games, machines". [redacted] usually receives the packing documents, which he [redacted] to [redacted]. The shipments normally arrive at the San Francisco or San Jose Airport.

Source says a [redacted] of MP Systems of Los Angeles arrived to purchase [redacted] DRAMS which were counted out to him by an Atari employee. The payment for the DRAMS ($119,000) was wired in and [redacted] also of MP, put in an order for 40,000 more DRAMS.

SOURCE: FBI Case 87A-SF-40454, Page 16

September 13, 1988
US Customs responds, indicating that have records of 1,057 imports this year. 14 were intensive, most were duty free and required no examination on entry through SF airport. For July/August, there were 11 entries. Jul 29, August 2nd, 9th, 12th, 15th, 19th, and 22nd. No software or video games were claimed.

Our FBI Special Agent performs simple background checks on Koral International and Teddy Bear Express. They were not able to find a business licence for Teddy Bear Express.

COMMENTARY: They may not be able to find a licence for Teddy Bear Express because it was a small-time operation. Or it may simply be that they got the name wrong, as it appears to be "Teddy B-Air Express" or "Teddy B-Air Freight Delivery".

SOURCE: FBI Case 87A-SF-40454, Page 17

September 16, 1988
Source advised that a shipment of 40,000 DRAMS was being readied for MP Systems, 23341 Del Lago Drive, Laguna Hills, CA. Money to be wired in, since Atari changed policy and no longer wanted cashier's checks. MP systems was a no-show. Employee of Koral picked up 4000 DRAMs.

Source had inventoried the "special room" showed 3 types of Fujitsu DRAM, one AT&T, one Mitsubishi.

US Customs Special Agent advised there were no customs duties on 256K DRAMs being imported, but there were duties on 64K RAMS being imported into the US.

COMMENTARY: The report from the US Customs Special Agent doesn't make sense to me. But in the end, the analysis seems to be that none of the DRAMs being imported are subject to import duties.

SOURCE: FBI Case 87A-SF-40454, Pages 18-20

September 20, 1988
San Francisco Source advised that 100,000 pieces of 64K RAMS were sold to Koral. The rest of the ICs in the "special room" were sold to MP Systems. 150,000 more of the 64K and 256K DRAMS expected to be delivered this week.

COMMENTARY: There was a great deal of mix-up on the terms used to describe the various DRAM sizes. The 64k DRAMs mentioned could actually be 64kx4 DRAMs, which would be a specific kind of configuration for a 256K DRAM.

SOURCE: FBI Case 87A-SF-40454, Page 21

September 21, 1988
Source advised that 150,000 DRAMs had arrived in the US today, were expected to clear customs on Thursday september 22nd, and were to be delivered by Teddy Bear on Friday. SOURCE: FBI Case 87A-SF-40454, Page 21
September 22, 1988
Source advised he heard nothing else about the shipment of DRAMS expected to arrive this week. Says they usually arrive via Flying Tigers or JAL, and the paperwork accompanying the parts usually has "parts for resale, not taxable" written on it.

SOURCE: FBI Case 87A-SF-40454, Page 21

US Customs Special Agent advised that an incoming shipment from Northwest Airlines has been examined by US Customs on September 22nd, and that it contained NEC and American Micro Technology ICs. No duty was paid, declared value was $750,000. Entry documents with the shipment referred to 64Kx4 circuits to be shipped in the future. Actual count of shipment not taken.

SOURCE: FBI Case 87A-SF-40454, Page 20

September 23, 1988
Source arrived that 150,000 unit shipment of DRAMS arrived from Northwest Air. Included was a copy of a fax to L.J. Liu/Atari Manufacturing stating that they will air 50,000 64x4 DRAMs. Although shipping documentation stated the total count was 15,000 DRAMs (6,000 from N.E.C. and 9,000 from National Semiconductor), the actual count was 60,000 NEC and 90,000 NS for a total of 150,000 DRAMs. Believes that the number claimed was a deliberate attempt by Atari to cover up the actual amount coming in, and if confronted, would claim they made a mistake by leaving off a zero. Actual value of the DRAMs is $2.5-5 million dollars, and they are being sold to Koral.

SOURCE: FBI Case 87A-SF-40454, Page 21

September 27, 1988
US Customs Special Agent advised that Atari has been undergoing a regular audit for approx 1yr, but it was a routine process, and the audit disallowed only 24 claims.

SOURCE: FBI Case 87A-SF-40454, Page 20

Source advised that [redacted] was heard saying that Atari was under investigation for export or import violations. [redacted] told source that "first loyalties lie to Atari first."

Source advises that Atari received a shipment of 50,000 parts marked Micron Technologies. They made a sale to MP Systems and Koral International. An Atari maintenance man drop the MP guy to the airport. Source [redacted] DRAMS out of an Atari box and put them in an Adidas shoe box, acting like he was pulling off a drug deal.

SOURCE: FBI Case 87A-SF-40454, Page 27

September 29, 1988
Source advised that a shipment of DRAMS had arrived via Teddy Bear Express, under air bill [redacted]. This consisted of eight cartons of 64kbit and 1Mbit DRAMS, packed ina box labeled 1040 Computers. There was a telex "To [REDACTED] from LIU, Atari."

SOURCE: FBI Case 87A-SF-40454, Page 27

September 30, 1988
Source advised that a shipment from Federal Express had arrived, shipped from Dove Computer Corporation, North Carolina, and that in the boxes were 200,000 256k DRAMS, and writing in Japanese. Fifty of the DRAMS were sold to an unknown person, 19,950 were shipped to Taiwan. [redacted] was written on the invoice they were shipped out under.

COMMENTARY: Dove Computer Corporation is an Apple Macintosh peripherals manufacturer. But this is interesting. They actually are shipping DRAMs back to Taiwan, which I assumed would be to their manufacturing facilities. Did they get a great deal on the price? Or perhaps had they oversold the very DRAMs that they needed to manufacture their own computers? The documents do not provide enough information to make a determination.

SOURCE: FBI Case 87A-SF-40454, Page 30

October 1, 1988
[unknown source] advised that the US Government has an agreement with the Japanese Ministry International Trade and Industry (MITI) concerning the importation of DRAMs and ICs into the US. In source's opinion, a company bringing in a large quantity of ICs would be violating the MITI directive, and the company's supply of ICs would be totally shut off by the Japanese if it were known that a company were "smuggling" in circuits. It is source's opinion that the US Customs service enforces this directive.

COMMENTARY: This illustrates the risk that Atari seems to be taking in its DRAM operation. If the Japanese knew what Atari was importing their chips into the United States and reslleing them, it was very possible that Atari would lose their access to a critical component that is required for them to continue operating as a computer manufacter. Atari's entire business would be at risk.

SOURCE: FBI Case 87A-SF-40454, Page 22

October 3, 1988
STart Magazine reports: On October 3,1988 Atari Corporation president Sam Tramiel was the guest speaker at a formal conference on CompuServe. He made no major announcements, but he did say that Atari was working on a portable ST and hoped to show the 32-bit TT and new ST computers in early 1989. Regarding the shortage of STs in the United States, he stated that Atari had "just signed a major deal with a big DRAM supplier and the situation will get better, I hope, in early 1989."

October 13, 1988
Source advised that officials at Atari were now putting transactions numbers on cashier's checks they were receiving, along with the name Atari, and that they were no longer putting Styra as the company name on documents they were selling the DRAMS to, but were putting the actual company name.

Source advised that 5,000 1Mbit DRAMS were sold to Product Plus, and Atari received a Bank of America's cashier's check number [redacted] in teh amount of $131,252.

SOURCE: FBI Case 87A-SF-40454, Page 27

October 18, 1988
US Customs Agent advises that the US Government honors the Japanese Ministry International Trade and Industry (MITI) export requirements and that if there were trade restrictions on exports from Japan to Taiwan, the U.S. would honor those restrictions, such as pohibited import into the U.S. after sale to Taiwan.

The agent further advised that, according to U.S. Customs Representative to Japan, no legal action had even been taken for violations of this agreement. Also, if a company imported ICs into the US and claimed that they were software, this would be a technical violation of Title 18, US Code 542, but unless there was duty on the ICs being brought into the country, depriving the US of funds, no prosecution is usually attempted.

SOURCE: FBI Case 87A-SF-40454, Page 33

San Francisco Source advised that Atari employee [redacted] stated that he had been told a story that the FBI was investigating Atari, and that if he [redacted] found out that the people (at Atari) have not been telling him the truth, he wanted to talk about things, and be put in touch with the right people. [redacted] of all the paperwork on sale of the DRAMS and stated [redacted].

Since Atari does not do any manufacturing in the United States, they would have no reason to bring integrated circuits (ICs) into the country. In source's opinion, the manufacturer of the IC's suchas Fujitsu, would be very upset to know that Atari was reselling their product.

SOURCE: FBI Case 87A-SF-40454, Page 18

October 25, 1988
US Customs Agent advised that he had determined through an examination of Atari's records that from May 1988 to October 15,1988, 100 shipments had been brought in by Atari through the airport, and 200 had been brought in through the Oakland Seaport.

SOURCE: FBI Case 87A-SF-40454, Page 33

October 26, 1988
Source advised that $2-3M worth of 256K DRAMS had been delivered at Atari that day by Teddy Bear Express, and that they were packed in a Motorola box and arrived on a pallet of four boxes. Source advised that [redacted] inventoried the parts and they were being kept under tight security in the special room. Teddy Bear Express is used to handle the expensive items like the DRAMS, but normal Atari products are shipped in by Kuehne and Nagel. Before Atari started bringing in the DRAMS, Teddy Bear Express was not used as a shipper.

SOURCE: FBI Case 87A-SF-40454, Page 35

October 28, 1988
Source advised that a shipment of Toshiba DRMAS had arrived from Irving, Texas and were delivered by CWX, a subsidiary of T&T Trucking in a trailer with [redacted] on it.

FBI acquires documents (as evidence) from source at Atari: [NOTE: These documents were not digitized by the FBI and were destroyed in 1996 as part of routine evidence procedure.]

1) Chip Room Security Procedures
2) Inventory List "C101712" (2 pages)
3) Import Log 9/21/88
4) Original Ship Declaration "D48197"
5) Delivery Receipt, File #881046171
6) Teddy B-Air Freight Delivery Receipt #81940
7) Atari Security Sign-In Register Dated 9/12/88
8) Dove Packing List Dated 9/28/88
9) Kuehne & Nagel Delivery Order Dated 10/10/88, Carrier: Flying Tiger
10) Kuehne & Nagel Delivery Order Dated 10/10/88, Carrier: United Airlines
11) Atari Shipping Delcaration Shipped to MP SEPTEMS [MP SYSTEMS?], Dated: 9/12/88
12) Atari 1988 1st Quarter Report
13) Atari 1988 2nd Quarter Report

SOURCE: FBI Case 87A-SF-40454, Page 35

ATARI MANAGEMENT REACTS TO POTENTIAL FBI INVESTIGATION [unknown] from Atari (mgmt) called in. Strange story about a guard employee who recently quit. That employee told someone that he had contacted the FBI and said that Atari was shipping [redacted] to the Russians. Also stated he was told to remove all personal and Atari identification and deliver [redacted] to Sun Micro Systems. He was told to do this by Atari's CFO. He felt Atari was doing something illegal. This was the first that Atari had heard of this. "Atari would welcome the opportunity of explaining anything the FBI has a concern with". Also feels that [redacted] at Sun Micro Systems would cooperate. [EDIT: Fix this up.]]

SOURCE: FBI Case 87A-SF-40454, Page 23

November 7, 1988
Source advised that two transactions regarding the sale of ICs had taken place. It appeared they were attempting to clean out the special room that the DRAMS were stored in. One huge box went to MP Systems, although paperwork indicated it was going to Styra. The other shipment went to Koral.

Source advised that no new DRAMS were being shipped in.

SOURCE: FBI Case 87A-SF-40454, Page 37

November 8, 1988
San Francisco Source advised that no new shipments of DRAMS had gone in or out, but that a large quantity of software games had been sent down to the main distribution arehouse in City of Commerce, outside of LA. This was sent via Schneider Trucking Company and consisted of:

Truck 1: 1460 cartons at 72 pieces per carton
Truck 2: 1330 cartons
Truck 3: 1275 cartons

Source heard that the software being being transferred to Federated Stores so that Atari could avoid paying $8M.

SOURCE: FBI Case 87A-SF-40454, Page 37

Other source advised that something appeared to be going on at Atari at night because there were tire tracks in the dust inside the building, coming through the front door on the south side of the building. That door is never used during the day. Even the mailman asked what was going on. Source feels that they are probably moving the DRAMS in and out at night because they do not want source to know about the sales.

SOURCE: FBI Case 87A-SF-40454, Page 29

November 9, 1988
Source advised that [redacted] Atari [redacted] Distribution, knows about Atari's DRAM distributor system, and when she heard there might be an ongoing investigation, she stated "It's about time." Source also advised that [redacted] of Atari, and several other individuals in management, were selling their Atari stock shares out a little at a time. Another Atari employee, [redacted] and source advised that she also knows about the incoming shipment of DRAMS.

Source also advised that Atari was shipping out software games under an old copyright agreement to Federated stored in City of Commerce, California so they would not have to pay as much for the software under a new agreement.

Source advised that three shipments of Atari software had gone out to Federated stores in Commerce City. Truck number [redacted] consisting of 1648 cartons. Truck number [redacted] consisting of 1358 cartons. Truck number [redacted] consisting of 1264 cartons.

These shipments were authorized by [redacted].

Source additionally advised that [redacted] stated there had been a lot of high level meetings concerning the DRAMS that [redacted] was importing into the country. [redacted] said that she thought that "they were up to no good", and that she considered [redacted] to be a crook.

Source further advised that Atari had purchased the copyright to computer games manufactured by Namco-American, Incorporated, including "Ms. Pacman" and "Pole Position", and that in order to avoid paying a dollar royalty on each game, they were transferring the games to Federated stores to sell. 91,000 had already been shipped out and another 100,000 was scheduled to go.

SOURCE: FBI Case 87A-SF-40454, Pages 29-30

November 15, 1988
San Francisco Source advised that a 10 million dollar shipment of DRAMS was being sold to a company called United Micro Electronics. The word was that Atari had bought a bad batch of DRAMS, and was trying to dump it off on someone else. The parts had [redacted] printed on them.

SOURCE: FBI Case 87A-SF-40454, Page 31

November 16, 1988
US Customs Agent advised that inspections of incoming Atari products had disclosed no unauthorized entries.

SOURCE: FBI Case 87A-SF-40454, Page 34

November 17, 1988
Source advised that Teddy Bear Trucking went out of business within one week of Atari being aware that there was an investigation into Atari's importing activities.

SOURCE: FBI Case 87A-SF-40454, Page 38

Another source advised that [redacted] from Atari's subsidiary Federated has attempted to purchase parts from Motorola, and when he found our he could not get the parts from Motorola, stated he would purchase them from Atari. The Motorola salesman said that he could not because Atari was not an authorized distributor with a license, but [he] still indicated he would be able to get whatever he wanted from Atari.

SOURCE: FBI Case 87A-SF-40454, Page 31

November 25, 1988
San Francisco Source advised that the incoming shipments of DRAMS appeared to have stopped, and that there was no activity regarding their sale. However, the special room set up to receive the DRAMS still had a lot of product in it.

SOURCE: FBI Case 87A-SF-40454, Page 32

December 2, 1988
US Customs Agent advised that inspections of incoming Atari products had disclosed no discrepancies in incoming computer products.

SOURCE: FBI Case 87A-SF-40454, Page 34

December 16, 1988
US Customs Agent advised that inspections of incoming Atari products had disclosed no discrepancies in incoming computer products.

SOURCE: FBI Case 87A-SF-40454, Page 34

December 31, 1988
Atari 1988 Annual Report: "Our XE line of 8-bit computer systems is extremely popular throughout Eastern Europe, and most recently, has begun to appear on retail shelves in the Soviet Union."

SOURCE: Reprint of the Atari 1988 Annual Report via article by Len Stys in the Atari Time Capsule #7, provided by the Cleveland Free-Net Atari-SIG

January 10, 1989
US Customs Agent advised that inspections of incoming Atari products had disclosed no discrepancies in incoming computer products.

SOURCE: FBI Case 87A-SF-40454, Page 34

March 1, 1989
Source advised that all incoming shipments of DRAMS into Atari had ceased. Also that Atari was suing Nintendo for copyright infringement.

SOURCE: FBI Case 87A-SF-40454, Page 40

NOTE: It was actually Atari Games that was suing Nintendo, not Atari Corporation. SOURCE: NY Times "Atari Plans to Divest Retail Unit" March 8,1989

March 9, 1989
In an effort to stem its losses, Atari would treat Federated as a discontinued operation.

Source: LA Times "P.M. Briefing: Atari Reports Third-Quarter Loss of $97 Million, Blames Federated"
Source: NY Times "Atari Plans to Divest Retail Unit" March 8,1989

Atari explains that Federated's losses for 1988 were $124 million. A staggering loss of $106 million in the last quarter of 1988 was explained as a write-off of Atari's remaining investments in Federated and that Federated's losses would no longer affect corporate earnings.

SOURCE: STart Magazine, Volume 4 Number 2, September 1989, Page 11

For accounting purposes, Atari says it began treating Federated Group as a discontinued operation on January 1st.

SOURCE: LA Times "Atari Puts Federated on the Block"

March 10, 1989
Source advised that Atari was planning to sell its subsidiary, Federated, apparently due to losses incurred by the corporation because of the shortage of DRAMS. Some of the individuals importing large quantities of DRAMS into the United States transferred to Atari. In source's opinion, Atari is doing something sneaky with taxes on the sale of Federated.

SOURCE: FBI Case 87A-SF-40454, Page 40

March 28, 1989
US Customs agent advised that no fraudulent shipments of incoming Atari products had been detected in recent inspections.

SOURCE: FBI Case 87A-SF-40454, Page 41

April 24, 1989
Source advised that [redacted] was no longer at Atari, but moved to Federated Stores. His replacement knows nothing about [redacted] work.

SOURCE: FBI Case 87A-SF-40454, Page 44

April 27, 1989
Source revised previous statement about the person. Details redacted. Something about head of purchasing and the guard in the main lobby.

SOURCE: FBI Case 87A-SF-40454, Page 44

May 8, 1989
Source spoke with current employee, feels that she might be approachable and furnish information pertinent to the investigation.

SOURCE: FBI Case 87A-SF-40454, Page 44

May 9, 1989
Source advised that the shipments of DRAMS coming in from overseas had started again. The ICs were again being put in the special room and outside individuals were coming in to make buys.

SOURCE: FBI Case 87A-SF-40454, Page 44

May 15, 1989
FBI SA and US Customs Agents advised Assistant US Attorney that source information and investigation had determined that Atari Corporation was importing 256K DRAMS into the US in false packing containers, and without proper import documents in violation of US import laws and contrary to import agreements between the US and the Japanese Ministry of Industry and Trade. Atari purchases large quantities of DRAMS from Japanese manufacturers for use in their Taiwanese manufacturing plants. Purchasing in Taiwan allows Atari to obtain the DRAMS at a greatly reduced price.

There are strict import quotes on the DRAMS, because of Japanese flooding of the market in years previously but there are no import duties. By shipping the DRAMS in the U.S., Atari can thereby increase the price by approximately four times their purchase price. The original manufacturers, whether Fujitsu or Mitsubishi would not be allowed to import this quantity at this price into the U.S., because this practice stifles U.S. manufacturers.

Investigation determined that Atari was importing large quantities, 150,000 or more a wekk into the U.S. since May,1988. None were declared through U.S. Customs, and it appears telexes and telephones were used to order specific quantities in furtherance of this scheme.

Based on the above, Assistant US Attorney stated he would consider prosecution of this matter under the Wire Fraud Statutes or 1001 Falsification of Import Documents.

SOURCE: FBI Case 87A-SF-40454, Pages 42-43

May 22, 1989
Source advised that he heard that high ranking Atari employees were under direction of Atari's attorney not to discuss or say anything about accusations by former employees regarding incoming shipments of DRAMS, and not to talk about the employees who made those accusations.

SOURCE: FBI Case 87A-SF-40454, Page 45

June 5, 1989
Active investigation not conducted by FBI due to agent involvement in undercover case.

SOURCE: FBI Case 87A-SF-40454, Page 46

August 14, 1989
Source advised that he was retiring from Atari. Atari alleged to have a large number of layoffs in the near future.

SOURCE: FBI Case 87A-SF-40454, Page 47

August 15, 1989
Monday (14th) Atari reported negligible 2Q profits. Net income tumbled 95% to $327,000 or 1 cent per share from $5.6M or 10 cents per share a year ago. Sales dropped from $102.5M to $82.7M. For the first half of 1989, Atari reported net income of $3.6M or 6 cents a share on sales of $171.5M. Last year, net income was $11.2M or 19 cents a share on sales of $200.8M.

SOURCE: San Jose Mercury News "Atari blames Nintendo for slump in profits"

September 19, 1989
Source advised that Atari was probably going out of business soon.

SOURCE: FBI Case 87A-SF-40454, Page 48

September 29, 1989
Active investigation not conducted by FBI due to agent involvement in undercover case.

SOURCE: FBI Case 87A-SF-40454, Page 49

October 11, 1989
Source furnished FBI with article on Atari's net income loss, and blame of unfair competition from Nintendo.

SOURCE: FBI Case 87A-SF-40454, Pages 50-51

October, 1989
Atari releases the Lynx. Due to shortages, released in limited numbers only in NY and LA.

November 9, 1989
[NEEDS CONFIRMATION] Atari said it had agreed to sell 26 of its Federated Group consumer electronics stores to Silo Inc., a Philadelphia-based electronics retailer. Silo would take over 21 Federated stores in Los Angeles and Orange counties and five in San Diego. After the transation Atari would still own 14 Federated stores in Texas, Kansas and Arizona.

November 16, 1989
New York times reports concerning Sun Microsystems: "Sun had been one of the companies that was hurt most severely and had complained most loudly about how difficult it was to get memory chips during a shortage in 1988. Sun was forced to raise prices of its work stations because of higher chip prices."

"James T. Decker, manager of strategic commodity procurement for Sun, said his company had ''forged long-term strategic relationships'' with enough chip suppliers to insure it of ''adequate supplies and acceptable prices'' for the chips, which are known as dynamic random access memories, or D-RAM's, and are the main type of chip used to store data in computers.

New York times reports concerning Atari: "Prices for a one-megabit D-RAM, which can store one million bits, have dropped to under $10 from $20 late last year. The Atari Corporation said today that it had taken a $10 million charge against its third-quarter earnings because it was stuck with chips and disk drives that had dropped sharply in price."

December, 1989
Due to shortage of Lynxes, Atari misses the Christmas shopping season. Nintendo's Gameboy dominates the portable video game market.

January, 1990
[NEEDS CONFIRMATION] Atari is continuing efforts to dispose of Federated. In January, 23 southern California leasehold interests were sold to Silo Holdings Ltd.

February 14, 1990
US Customs agent reports that he has been unable to work this case recently due to another assignment. A portion of the case had been assigned to an IRS agent. He is in the process of ordering subpoenas for bank records and checks allegedly issued to Atari for ICs, would update FBI with the status of the investigation.

March, 1990
Atari releases the Lynx nationwide with five game titles.

April 14, 1990
Subpoenas for bank records are with the US Attorney's Office. Determined that one of the checks in the amount of 8 million that was allegedly deposited by Atari was likely the Israel Discount Bank of New York, and that a subpoena would be required for information. Advised that he would obtain subpoena from Assistant US Attorney for this and check received by Atari from Product Plus.

May 22, 1990
New York Times article reports: "The Atari Corporation has begun talks to acquire computer chips from the Soviet Union. Gregory Pratt, Atari's chief financial officer, said the company had obtained and tested dynamic random access memories, or D-RAM's, produced in the Soviet Union. The chips can store 256,000 bits of information. Mr. Pratt said Atari's main goal was to sell computers in the Soviet Union. But knowing that the Soviet Union has little currency to pay for products, the company is looking for something to trade for." [go back and find claim about Atari dealing with the Russians]

STart Magazine reports: "Atari is negotiating with the U.S.S.R. to trade Soviet-made 256K DRAM chips for ST computers. The Soviets produce an excess of 2.5 million chips each month and have been seeking a market for them through Global Development Corp., a Seattle trading firm. If the deal goes through, the workers in the Soviet DRAM factory would receive 25 percent of the profits from the sale of ST computers in the Soviet Union. Atari said it is checking the chips to see if they meet the company's quality standards."

July 23, 1990
US Customs advised that he interviewed [redacted] Sunnyvalle, CA concerning his purchase of ICs from Atari in 1988. He says his company used to assemble computer boards for software packages and that he had made two purchases of ICs from Atari. Had been brokered by Products Plus in Morgan Hill. Purchases were $132,000 and $133,000. Did not consider it unusual he was purchasing from OEM, because it was common for OEMs to sell products that they had excesses of.

September 27, 1990
Products Plus interviewed in presence of US Customs agent. Said the only ICs he had ever brokered were out of Atari, only sold three or four accounts. For a customer at Tronics and a company in LA named Pacific Engineering. He said he had a long association with Atari, his understanding they were selling off excess ICs obtained from their off-shore manufacturing faciltiies. Was aware that the Tramiels had final approval over all the sales and that they signed all the purchase orders. He thinks the ICs were shipped in from Atari's facility in Taiwan, and that Atari only liquidated about 100,000 ICs.

October 1, 1990
US Customs advised that they contacted former owner of Teddy Bear Freight, once he locates the bills of lading for the Atari shipments, he would set up an interview.

November 14, 1990
US Customs contacted Teddy Bear Freight's former owner/operator. They have yet to provide the requested documentation.

December 7, 1990
US Customs contacted Teddy Bear Freight's former owner/operator. They have yet to provide the requested documentation.

January 7, 1991
Despite repeated contacts, US Customs was unable to obtain the delivery records to Atari from Teddy Bear Freight. Because of the difficulty, he was considering turning the case over to Customs civil division who would then audit Atari's books. Would advise the FBI once a decision is made.

January 8, 1991
US Department of Justice decides that criminal prosecution is not warranted and closes their case.

October 16, 1991
Case referred to US Customs civil division for audit. If violations of a criminal nature are found during the process, it would be referred back to the FBI.

October 17, 1991
Recommended to Special Agent in Charge that the case be closed until the audit discloses a criminal violation.

December 10, 1992
The August 30,1988 court case regarding Federated's sale to Atari has apparently come to an end. The odd result seems to be, "If you knew that they were lying, then it was reckless for you to trust their numbers. So it isn't fraud." Additionally, since the merger agreement indemnifies Federated officers, Atari will have to pay the legal costs for their defense.

Many years later, that decision concerning fraud will be referenced in the Facebook vs. ConnectU case regarding the origin and ownership of Facebook.

From the Court's decision: Atari possessed facts demonstrating that the representations upon which it claims to have relied were "patently and obviously false." Reliance on such statements is at the very least "manifestly unreasonable," and precludes a determination that the alleged misrepresentations caused Atari's injury.

Section 9.3(b) of the Agreement states: "[Atari] will indemnify all present and former officers and directors of the Company to the fullest extent permitted by applicable law with respect to all acts and omissions arising out of such individuals' services as officers, directors or employees of the Company or any of its subsidiaries." In our view, this language unambiguously includes indemnification for expenses incurred defending lawsuits brought by Atari.

SOURCE: 981 F.2d 1025, United States Court of Appeals, Atari Corporation v. [Federated]
SOURCE: 5:07-CV-01389-JW, US District Court, Northern California, Facebook v. ConnectU