THE HOTTEST SOFTWARE IN TOWN

By JOSHUA QUITTNER

The beige ranch house was in a hushed cul-de-sac on the eastern edge of Los Angeles -- not exactly where you would expect to see half a dozen sheriff's deputies in bulletproof vests, pistols at the ready. The gray-haired Chinese man who answered the door last Tuesday soon found himself handcuffed next to an associate, facedown on the floor, while the police searched the sparsely furnished home.

As it turned out, it wasn't a home at all, but a software counterfeiting factory known in the digital underground as a "warez house." In one bedroom police found eight copying machines that could churn out 130 floppy disks an hour. Another bedroom contained fat stacks of glittering hologram stickers -- laser-produced, three-dimensional images that are supposed to guarantee the authenticity of store-bought software. The third bedroom held boxes of stolen computer chips, worth more per ounce than crack cocaine. And in the living room piles of fake Microsoft user's guides spilled from open cartons.

The raid by the county's Asian Crime Task Force at the house and at a nearby printshop turned up the largest cache of illegal software ever discovered in the U.S., worth nearly $13 million at retail prices. By week's end investigators were still tallying the haul -- all Microsoft products, including the operating system called DOS 6.2 as well as the helper programs Windows and Windows for Workgroups. In March a similar raid in the same neighborhood unearthed about $4.7 million worth of phony software plus a supply of automatic weapons, 3 lbs. of TNT and 6 lbs. of C4 plastic explosive.

Software, guns and money? While software piracy is nothing new, the people doing the pirating are. During the past 18 months, a notorious 300-year-old Hong Kong-based gang known as the Wah Ching has extended its reach beyond its usual lines of business -- murder, extortion, narcotics and gambling -- into the hugely profitable racket of software bootlegging. Police say members of the Wah Ching are using their traditional drug-smuggling routes to ship phony holograms produced in the unregulated factories of China. On April 20, for instance, a Chinese man carrying 29,000 bogus Microsoft holograms was snared by Customs officials as he attempted to enter San Francisco international airport. "The Wah Ching are into everything -- anything that will make money," says San Francisco police Sergeant Richard Moses.

Software forging is a $2 billion black market in the U.S. alone. It costs little to turn out perfect copies of expensive software programs. The high cost of software comes from the years spent inventing it, not from the plastic and paper on which it is distributed. The full-service operation cracked last week, for instance, copied the disks, tagged them with holograms, and packaged them in shrink-wrapped boxes that included facsimiles of user's guides. Cost to the pirates: roughly $6 a unit. But each box would sell for as much as $200 to an unwitting-or unscrupulous-dealer.

Software forging is safer than drug running. Narcotics money, often bearing residues of cocaine or heroin, can be detected by drug-sniffing dogs. Software pirates, on the other hand, often ship their profits back to Asia via U.S. Priority Mail. Besides, the penalties for getting caught are less severe, although that is changing. Law-enforcement agencies, including the fbi and the Los Angeles County district attorney's office, have made investigating this kind of crime a priority.

Leading the new war on software gangsters are two detectives who, like the criminals they are pursuing, have spent the past 20 years in the traditional underworld of homicides, robberies and narcotics. They are Detective Jess Bembry and Sergeant Tom Budds of the Los Angeles County sheriff's department Asian Crime Task Force. Early this year, Bembry flew up to Microsoft's Redmond, Washington, headquarters, where he took a crash course in uncovering software fakery. The company sent him home not really expecting that the department's 11-man team would come close to breaking an international counterfeiting ring. But after the raid last week, Bembry and Budds had confiscated a total of $18 million in illegal software as well as $1 million in cash. They had also arrested eight suspects, and are looking for the man they believe is the ringleader of the major Microsoft-bootlegging ring. If only the folks at Microsoft could train a dog to sniff floppy-disk residue on dollars.

--REPORTED BY ELAINE LAFFERTY/LOS ANGELES

With reporting by Elaine Lafferty/Los Angeles