David J. Phillip / AP Federal agents carry boxes out of Arc Electronics Inc. in Houston on Wednesday. The Justice Department said it had broken up a smuggling ring aimed at illegally exporting microelectronics from the United States to Russian military and intelligence agencies.

Updated 9:18 a.m. ET: NEW YORK -- An elaborate network aimed at illegally acquiring U.S.-made microelectronic components for Russian military and spy agencies has been broken up, the Justice Department said on Wednesday - but Russia later denied its spy agencies were involved.

Federal prosecutors unsealed an indictment charging 11 alleged participants in the network, as well as companies based in Houston, Texas and Moscow, with illegally exporting high-tech components from the United States to Russian security agencies.

NBCNewYork.com reported that allegations involve illegally exporting approximately $50 million worth of high-tech microelectronics.

Alexander Fishenko, an owner and executive of the American and Russian companies, was also charged with operating as an unregistered agent of the Russian government inside the U.S. Fishenko was born in Kazakhstan and became a naturalized U.S. citizen in 2003.

According to the indictment unsealed in Brooklyn federal court, the procurement network began obtaining advanced, technologically cutting edge microelectronics from manufacturers and suppliers within the U.S. and exporting those goods to Russia in October 2008, while evading the government licensing system set up to control such exports.

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The microelectronics shipped to Russia have applications in a wide range of military systems, including radar and surveillance systems, missile guidance systems and detonation triggers, NBCNewYork.com reported.

'Web of lies'

Court papers say the network induced manufacturers and suppliers to sell them the high-tech goods -- and to evade applicable export controls by providing false end-user information in connection with the purchase of the goods -- concealed the fact they were exporters, and falsely classified the goods they exported on export records submitted to the Department of Commerce.

Prosecutors say the network's principal port of export for the goods was John F. Kennedy International Airport.

"As alleged in the indictment, the defendants spun an elaborate web of lies to evade the laws that protect our national security," U.S Attorney Loretta Lynch said. "The defendants tried to take advantage of America's free markets to steal American technologies for the Russian government. But U.S law enforcement detected, disrupted and dismantled the defendants' network."

Two law enforcement officials told Reuters that Fishenko and seven alleged associates were being held in custody in Houston. One of the defendants was scheduled to appear in court on Wednesday in Houston, and the others on Thursday.

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It was not known if they had yet entered any pleas, one of the officials said late on Wednesday. He said that prosecutors expected to ask for those arrested to be transferred to the custody of federal authorities in Brooklyn.

Three other individuals charged in the indictment are currently in Russia, the official said.

A court document made public by prosecutors outlined further details of the government's case against those charged.

It alleged that Fishenko used a Houston company called Arc Electronics to acquire U.S.-made technology for Russian government agencies, including the Russian armed forces and Russia's principal domestic intelligence agency, the Federal Security Service or FSB, a successor to the Soviet-era KGB.

According to the document, among electronic components that the procurement network sought were microcontrollers, microprocessors, static random access memory chips and analog-to-digital converters. Prosecutors claim that such items can be used for a wide variety of sensitive military and intelligence purposes, including radar and surveillance systems, missile guidance systems and detonation triggers.

However, Russia's deputy foreign minister Sergei Ryabkov said on Thursday the country's spy agencies were not involved. "The charges are of a criminal nature and have nothing to do with the work of the secret services," Ryabkov was quoted as saying by Russian news agencies, Reuters reported.

He said the situation had caused deep concern in Russia, and Russian diplomats had met one of the accused to discuss the situation and was preparing to meet the rest.

Surveillance

During the U.S. investigation of the alleged procurement network, which began in July 2010, the U.S. government had engaged in extensive court-approved surveillance of the email and telephone communications of those arrested, the document says.

Prosecutors say that among items collected during the investigation was a letter in which an electronics production laboratory operated by the FSB allegedly complained that certain microchips -- purchased from Arc in Houston through an affiliate of Fishenko's Moscow company -- were defective and needed to be replaced.

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Prosecutors say that when the Russia-based affiliate received the letter from the Russian intelligence agency, it forwarded it to Arc in Houston seeking replacements for the microchips.

At one point, in an effort to show their activities were innocent, Arc told Americans it had approached that it manufactured traffic lights, a U.S. official said.

NBC New York's Joe Valiquette and Reuters contributed to this report.

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