Hayward man gets prison for espionage

Ex-tour operator leaked info to China

OAKLAND » A Hayward man was sentenced to four years in federal prison for conducting a series of “dead drops” in which he leaked classified information to the Chinese government, in exchange for payments totaling $30,000.

Over four years, starting in 2015, Xuehua Peng, also known as Edward Peng, 56, made seven exchanges in Newark and Oakland, as well as Columbus, Georgia.

In each of the dead drops — with the exception of one test run — Peng either concealed stacks of cash, digital memory cards or both in hotels, and waited for his contact to pick them up, or retrieved similar packages that were left for him.

Peng, a naturalized U.S. citizen who was the registered owner of the now-defunct U.S. Tour and Travel in San Francisco, allegedly paid a human source up to $20,000 for secure digital cards containing American intelligence.

He taped the money under tables or desk drawers in the hotels, then would later doublecheck to make sure his contact had acquired the items, according to the FBI.

Authorities say Peng conducted the dead drops under orders from a China Ministry of State Security handler who mandated the logistics of each drop, including Peng’s trips to China to deliver the digital memory cards after he had retrieved them.

The four-year term was agreed upon as part of a plea deal in November but was finalized by a judge this month.

“This sentence serves as a powerful deterrent to both Communist China, who will continue to attempt to recruit others to act on its behalf, and those who attempt to carry out such tasks at the direction of its intelligence services,” FBI Special Agent in Charge John

Bennett said in a news release. “These actions are illegal and inexcusable. By working jointly with our partners, we will never stop our fight against hostile intelligence services and our determination to protect the national security of the United States should never be in doubt.”

Peng’s attorneys, in a sentencing memo, denied that he had been “radicalized” by China and described him as a patriotic American who was manipulated by foreign agents.

“He is a simple man who was recruited by sophisticated foreign agents. That simplicity in no way excuses Mr. Peng’s criminal activity,” the attor

neys wrote in the memo. “He acted willingly and continued the conduct long after he understood it was wrong, but he did not act out of ill will or opposition

to this country.

Rather, he ‘considers himself to be an American and appreciates the chance that the U.S. has given him.’ ”

However, according to the FBI, the investigation went far beyond the dead drops and included several hotel purchases involving

Peng and his sister.

In November, the FBI publicly named Peng as a “silent partner” in the fraudulent real estate venture allegedly run by his sister.

Acting as a “straw buyer,” the sister — a Mill Valley resident whose name has been redacted

in the documents — used money that originated in China to pay for four properties between 2013 and 2015, authorities said, ending up with ownership interests ranging from 30% to 100%.

An FBI agent accused Peng’s sister of purchasing, through different business

entities, the single-room occupancy Shree Ganeshai Hotel in San Francisco for $1.7 million in January 2013; the Red Lion Hotel in Oakland for $10.35 million in January 2013; the Country 17 Inn Hotel in Dixon for $5.28 million in January 2015; and a Napa property with a vineyard and house licensed to serve as a bed and breakfast for $2.28 million in November 2015.

Neither Peng nor his sister have been charged in connection with the hotel purchases.