EMC pays $87.5M fine to settle kickback charges

The DOJ also alleges EMC made false statements about pricing

The U.S. Department of Justice (DOJ) announced today that EMC Corp. has paid $87.5 million to settle allegations that it violated the federal Anti-kickback Act by giving kickbacks to consultants and overcharging for hardware and software.

In March 2009, the DOJ charged EMC with giving kickbacks to federal IT consultants and overcharged the government for hardware, software and technology services dating back to the late 1990s.

Former Accenture employees, Norman Rille and Neal Roberts, under the whistle-blower provisions of the False Claims Act, initially filed a civil lawsuit against EMC in the Eastern District of Arkansas. When the DOJ entered the case, the lawsuit was transferred to the U.S. District Court for the Eastern District of Virginia. The False Claims Act 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.

"The United States alleged that, by misrepresenting its commercial pricing practices, EMC 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 DOJ said in a statement.

The DOJ also alleges that the Hopkinton, Mass.-based storage vendor made false statements to the 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 all of the charges last year, and continued to do so today.

"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," said EMC spokesman Patrick Cooley. He went on to say that the government's case is "historical" in nature, and that some of the allegations are nearly 10 years old.

"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," he said.

According to the federal government's claim, 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.

"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."

EMC maintained agreements under which it paid consulting companies fees each time the companies recommended that a government agency purchase an EMC product, according to the DOJ.

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 still pending.

IBM and PricewaterhouseCoopers settled a similar case with the DOJ in August 2007, paying nearly $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.

The DOJ alleged that during contract negotiations with the GSA, EMC said it would 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. According to the government's complaint, EMC knew that it was not capable of conducting that 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."

"Companies should not keep charging higher prices to the Government when costs go down. The American taxpayers deserve a better deal," GSA Inspector General Brian Miller said in a statement.

Lucas Mearian covers storage, disaster recovery and business continuity, financial services infrastructure and health care IT for Computerworld. Follow Lucas on Twitter at @lucasmearian or subscribe to Lucas's RSS feed . His e-mail address is lmearian@computerworld.com.

Copyright © 2010 IDG Communications, Inc.

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