DOJ allegations against EMC focus on kickbacks, overcharges

EMC denies the allegations

The US Justice Department (DOJ) believes that EMC gave kickbacks to federal IT consultants and overpriced its hardware, software and technology services to the government beginning in the late 1990s.

The DOJ allegations against EMC came to light after the data storage vendor acknowledged the case in its annual 10-K financial filing to the US Securities and Exchange Commission.

The allegations follow from a lawsuit originally filed in the US District Court by former Accenture employees Norman Rille and Neal Roberts, under the whistleblower provisions of the False Claims Act. That law allows for triple damages in any case where a company has filed false or fraudulent claims to the United States for government funds or property.

According to the DOJ, Rille and Roberts alleged that EMC submitted false claims to the United States for IT hardware and services on numerous government contracts from the late 1990's to the present. "The core of the allegations, in which the federal government has joined by filing its own complaint, is that EMC made payments of money and other things of value (alliance benefits) to a number of systems integration consultants and other alliance partners with whom it had alliance relationships. The government's complaint asserts that these alliance relationships and the resulting alliance benefits paid by EMC amount to kickbacks and undisclosed conflict of interest relationships," the DOJ stated.

The DOJ also alleges that EMC made false statements to the US General Services Administration (GSA) about its commercial pricing practices in order to obtain a higher price on its contracts -- thereby overcharging federal agencies purchasing EMC products and services.

EMC denied the charges yesterday. "We did not make improper payments to business partners, and we did not engage in inaccurate pricing practices," said EMC spokesman Patrick Cooley.

Cooley said that the company cannot comment beyond what's in its 10-K filing, but added that "EMC did not violate the False Claims Act" as is alleged by the Justice Department.

"The matters at issue in this case are historical in nature; some of the allegations relate to events nearly 10 years old," Cooley said in an e-mail response. "We will vigorously defend this case and the many years EMC has spent serving the US. Government, and [we] will continue to provide mission-critical information infrastructure solutions to our important and valuable US Government customers as this matter proceeds."

EMC's case could be connected to a more widespread, multi-million dollar kickback scheme that the DOJ alleges also includes Hewlett-Packard, Sun Microsystems, Accenture and others. The DOJ filed suit in 2006, accusing at least a dozen technology vendors with secretive rebate and commission programs, referral systems and strategic alliances with federal agencies with which they had contracts.

IBM and PricewaterhouseCoopers settled a similar case with the DOJ in August 2007, paying nearly US$5.3 million to resolve claims that the two companies paid out kickbacks or provided benefits to other companies, in violation of the False Claims Act.

EMC said in its filing that if the matter proceeds to litigation, possible sanctions include an award of damages, including "fines, penalties and other sanctions, including suspension or debarment from sales to the federal government."

The DOJ declined to comment on the pending EMC case.

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