The fraud, according to an arrest affidavit sworn out by an FBI investigator, involved funding from the National Science Foundation. Zhang and two associates “conspired to and did in fact cause false statements and certifications to be submitted to NSF,” the court document states, and also “conspired to and engaged in a scheme to defraud NSF.” The other men are Zhiguang Zhu and Chun You.
“Dr. Zhang denies any wrongdoing and disputes the allegations,” his attorney, E. Scott Austin, told The Washington Post early Tuesday. “He looks forward to a public disclosure of the facts so that he can maintain his hard-earned reputation and good name as an American professor and scientist.”
Zhang appeared in federal court in Roanoke on Monday afternoon. The Roanoke Times reported that he remains in custody.
Born in China and naturalized as a U.S. citizen in 2011, Zhang was educated at Dartmouth and employed by Virginia Tech since 2005. Court documents state Zhang remained an affiliated researcher at the Chinese Academy of Sciences, while also having previously founded three Chinese technology start-ups.
Stateside, Zhang incorporated a technology start-up in 2010 called GFI. The firm’s aim was to develop “microbial technology that enables sustainable production of biofuels and biomaterials,” according to court documents. This company was dissolved, the government’s affidavit explains, and Zhang opened a new start-up, CFB, geared to the same mission.
“To fund CFB’s research, the company leveraged the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) funding programs managed by NSF” and the U.S. Department of Energy,” the affidavit states. Both programs were federal funding streams aimed at helping “facilitate the transfer of technology developed by a research institution through the entrepreneurship of a small business.”
But both programs came wrapped with strict requirements on how the awarded money was tracked and used. The main difference between the two programs: The STTR requires a business to partner with a research institution, such as a university. The university is required to receive at least 30 percent of the awarded funding and perform 30 percent of the research, the affidavit says.
This is where the government accuses Zhang of running into trouble, according to court documents. Since February 2013, the company has received five awards for funding totaling $1.1 million. Two of those awards — for $150,000 and $225,000, respectively — may contain “potential violations,” according to the affidavit.
But the other three money awards were problematic, the records indicate. For a March 2016 award of $584,083, the company allegedly filed “false statements concerning time and effort reporting.” A December 2016 award was halted when it was determined the money was for work that had already been completed in China.
And a November 2015 award of $149,265 turned out to violate the terms of the program because Virginia Tech did not receive its allotted portion.
“Virginia Tech only appears to have been paid for approximately 18 percent of the work per CFB’s award ledger rather than the required 30 percent,” the affidavit states. “The approved budget of $149,265 … included a $48,843 subaward to Virginia Tech, but CFB’s ledger and supporting documents … only showed $27,311.29 in payments to Virginia Tech.”
Virginia Tech spokesman Mark Owczarski told the Roanoke Times that Zhang was still a university employee as of Monday.
Zhang is also in the middle of legal action in civil court. A former employee has sued the professor in the U.S. District Court of Virginia. The Roanoke Times reported the legal complaint alleges confidential trade information developed by the former employee was improperly used by Zhang associate You. A trial is scheduled for 2018.
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