Howard Lutnick’s Commerce Department is facing major heat over its failure to crack down on Megaspeed – the Chinese AI firm at the center of the spy scandal that prompted Nvidia boss Jensen Huang’s shock resignation on Thursday.
Huang was having an affair with alleged Chinese spy Alice Huang, an executive at Singapore-based Megaspeed, even as US officials investigated its role in smuggling Nvidia’s best AI chips to China. Last year, officials learned that Megaspeed had imported 50,000 more chips than what Nvidia officials found at its Singapore-based data centers.
Rumblings on “bad findings about Megaspeed” swirled within the Commerce Department at least as far back as the summer of 2025, according to a recently departed former official at the agency who spoke to The Post on condition of anonymity.
At the same time, Commerce Department staffers were separately working on a rule that would effectively undo a Biden-era rule on AI chip exports — which Nvidia and Lutnick both dismissed as too stifling — and add a new measure requiring export licenses for advanced chip sales to certain countries in Southeast Asia.
The ex-official said that rule was close to being published as of July of 2025 – but never got past Lutnick’s desk.
The official said that the rule, if it had been implemented, would have “substantially mitigated” the ability of Megaspeed and other firms housed in Southeast Asia to obtain Nvidia’s advanced AI chips. Nvidia and Jensen Huang were vocal critics of China-focused curbs on chip sales.
“There was a rule that was ready and all of the agencies had signed onto that rule,” the ex-Commerce Department official said. “Lutnick refused to publish it.”
As of Thursday afternoon, senior White House officials are weighing whether Lutnick should be forced out as Commerce secretary, Reuters reported, citing people familiar with the matter.
A White House official defended Lutnick in a statement to The Post.
“Secretary Lutnick is a champion of President Trump’s America First trade and tariff policies, which have secured almost 20 fair trade deals and trillions in manufacturing investments,” the official said. “President Trump maintains complete confidence in the secretary and his ability to carry out the position as the most transformative Commerce secretary in modern history.”
Regardless, Lutnick and top aide Jeffrey Kessler, who oversees export controls as head of Commerce’s Bureau of Industry and Security, will certainly face congressional probes as both parties demand answers and a crackdown on AI export controls.
Sen. John Kennedy (R-La.) – one of more than half a dozen GOP lawmakers to speak out – told Politico that Lutnick needs to explain his failure to address the problem “in front of God and country.” Elsewhere, Treasury Sec. Scott Bessent reportedly confronted Lutnick in the Situation Room for slow-walking the chip crackdown and not already naming Megaspeed an entity of concern.
“China’s getting access to very large numbers of chips. It’s very significant. I do think the blame for that is squarely on Kessler and ultimately Lutnick,” the ex-official added.
Late Wednesday, The Information reported that the Commerce Department was finalizing a rule that would expand export controls to seven Southeast Asian countries including Malaysia, Singapore and Thailand – in a bid to close a loophole that allowed Chinese entities to remotely access Nvidia chips housed in data centers located in those countries.
When reached for comment, a BIS spokesperson confirmed that the agency is “actively considering new rules to address remote access with interagency partners.”
“BIS has a strong track record of enforcement across the board, including in cases involving Nvidia and its products,” the spokesperson added.
Commerce’s handling of the Megaspeed matter is nothing short of “stunning,” according to Chris McGuire, senior fellow at the Council on Foreign Relations and former deputy senior director at the National Security Council from 2022 to 2024.
McGuire pointed out that President Trump has consistently said he did not want Nvidia’s most advanced “Blackwell”-class AI chips to end up in China’s hands, even as he signed off on sales of its less-powerful H200 chips to Chinese firms.
“The president has been pretty clear – no Blackwells to China,” McGuire said. “And the way that Commerce is implementing export controls is massively undermining the president’s policy.”
Commerce’s dealings with Nvidia itself behind closed doors are also under massive scrutiny. Earlier this week, Bloomberg reported that Nvidia’s general counsel Tim Teter directly called Kessler to ask about the agency’s probe into Megaspeed. Specifically, Teter wanted to know if BIS had anything to do with the detention by Singaporean authorities of Megaspeed’s Alice Huang — the alleged Chinese spy and mistress of Nvidia’s Jensen Huang — in the summer of 2025.
The report added that Commerce staffers were subsequently “muzzled in their ability to look into the company” and told to route requests on the matter through Kessler.
The BIS spokesperson said any concerns that Kessler’s dealings with Nvidia were inappropriate are “entirely unfounded.” The phone call between Kessler and Teter occurred after Nvidia directly contacted BIS employees, who then forwarded the email chain to Kessler.
Kessler then informed BIS staffers to “please continue to handle this case strictly by the book.”
“Kessler’s response to Nvidia was absolutely correct,” the spokesperson added. “He handled the situation impartially and with integrity, as he always does.”
An Nvidia spokesperson said the company regularly consults with “BIS, [the Office of Export Enforcement], and other officials to answer their questions, provide information we have gathered from the field, request their guidance and instructions, and ask whether they have any follow-ups.”
Meanwhile, sources said Kessler has a reputation as a micromanager with an obsessive eye for detail – traits that have at times made it difficult for BIS to move quickly on key issues.
“There’s a kind of reluctance to act and more of a desire to obtain precise legal fact,” the ex-Commerce official said. “Of course, by the time you do that, the technology’s out the door.”
Nvidia has been applying immense pressure on Commerce not to impose stricter limits – putting agency leaders in a bind as they also try to appease China hawks within the administration, according to Gregory Allen, CEO of Decision Tree Research.
“If you change the policy to allow the exports of the Blackwell legally, then you have to confront the obviousness of being soft on China,” Allen said. “If you simply allow smuggling while denying its existence, then you can claim that you’re still tough on China.”