EMC $87.5M To Settle US Pricing Fraud Lawsuit

EMC, the world’s largest independent storage hardware and software producer, today paid the US Treasury $87.5 million (£61.3m) to settle out of court a lawsuit alleging that it illegally overcharged a federal agency and violated two federal laws: the federal False Claims Act and the Anti-kickback Act.

In the lawsuit, the Department of Justice (DOJ) alleged that, by misrepresenting its commercial pricing practices, EMC fraudulently induced the General Services Administration (GSA) to sign a contract including prices that were higher than they would have been had the company not made false misrepresentations.

Specifically, the DOJ alleged that the Massachusetts-based company represented during contract negotiations that, for each government order under the contract, EMC 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 DOJ’s charges, 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 DOJ also alleged 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.

These 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. The kickback investigation was initiated by a lawsuit filed under the qui tam, or whistleblower, provisions of the False Claims Act, which allow private citizens to sue for fraud on behalf of the United States and share in any recovery.

“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 DOJ, said in a press 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,” said GSA Inspector General Brian D. Miller.

The case and settlement were handled by the Justice Department’s Civil Division and the US Attorney for the Eastern District of Virginia, with the assistance of the GSA Office of the Inspector General, the Department of Energy Office of the Inspector General, the US Postal Service Office of the Inspector General, the Defence Criminal Investigative Service, and the Treasury Department’s Inspector General for Tax Administration.

EMC spokesman Patrick Cooley told the Wall Street Journal that the company “has always and will continue to deny any liability for the allegations made in the case”.

“We are pleased to have the distraction, expense and uncertainty behind us,” Cooley said, adding that the matters at issue were “historical in nature.” Some of the events in the case were nearly 10 years old, he said.