EMC Settles Kickback Charges for $87.5 Million

EMC (NYSE: EMC) has paid $87.5 million to settle a federal kickback and pricing lawsuit
EMC Faces Justice Department Pricing Probe).

The Justice Department lawsuit charged that the data storage giant violated the False Claims Act and the federal Anti-kickback Act, charges that EMC continues to deny despite settling the case.

The lawsuit alleged that EMC misrepresented its commercial pricing practices and “fraudulently induced the General Services Administration (GSA) to enter into a contract with prices that were higher than they would have been had the information technology company not made false misrepresentations,” the Justice Department said in a press release yesterday.

The government claimed that EMC pledged during contract negotiations to “conduct a price comparison to ensure that the government received the lowest price provided to any of the company’s commercial customers making a comparable purchase. … EMC knew that it was not capable of conducting such a comparison, and so EMC’s representations during the negotiations — as well as its subsequent representations to GSA that it was conducting the comparisons — were false or fraudulent.”

The U.S. also charged that EMC engaged in “an illegal kickback scheme designed to influence the government to purchase the company’s products. EMC maintained agreements whereby it paid consulting companies fees each time the companies recommended that a government agency purchase an EMC product.”

The investigation was started by a lawsuit filed under the whistleblower provisions of the False Claims Act, which allow private citizens to sue for fraud on behalf of the U.S. and share in any recovery. The Justice Department said the kickback allegations “are part of a larger investigation of government technology vendors that has resulted in settlements to date with three other companies, with several other investigations and actions still pending.”

IBM (NYSE: IBM), HP (NYSE: HPQ), Accenture (NYSE: ACN), Sun Microsystems and NetApp (NASDAQ: NTAP) are among the companies that have faced similar complaints.

“Misrepresentations during contract negotiations and the payment of kickbacks or illegal inducements undermine the integrity of the government procurement process,” Tony West, assistant attorney general for the Civil Division of the Department of Justice, said in a statement. “The Justice Department is acting to ensure that government purchasers of commercial products can be assured that they are getting the prices they are entitled to.”

“Companies should not keep charging higher prices to the government when costs go down. The American taxpayers deserve a better deal,” stated GSA Inspector General Brian Miller. “This case is another demonstration of the value of OIG audits.”

But an EMC spokesperson said, “EMC has always denied these allegations and will continue to deny any liability arising from the allegations made in this case. We’re pleased that the expense, distraction and uncertainty of continued litigation are behind us.

“The matters at issue in this case are historical in nature, with some of the allegations relating to events that are nearly ten years old,” the EMC spokesperson said. “That said, EMC provides mission-critical information infrastructure solutions to numerous branches of the U.S. Government and will continue to serve our important and valuable federal customers.”

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Paul Shread
Paul Shread
eSecurity Editor Paul Shread has covered nearly every aspect of enterprise technology in his 20+ years in IT journalism, including an award-winning series on software-defined data centers. He wrote a column on small business technology for Time.com, and covered financial markets for 10 years, from the dot-com boom and bust to the 2007-2009 financial crisis. He holds a market analyst certification.
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