Was Uncle Sam Bilked by IT Kickbacks?

The Justice Dept. has accused some of the tech industry's biggest companies of running secret rebate and commission schemes, and more charges are expected

by Lorraine Woellert

With some big players already named in lawsuits alleging a widespread kickback scheme, the information technology industry will see further scrutiny as federal prosecutors pursue additional charges in coming weeks. Last week, the Justice Dept. filed civil charges against Hewlett-Packard (HPQ), Sun Microsystems (SUNW), Accenture (ACN), and Accenture subsidiary Proquire as part of a two-year investigation involving potentially billions of dollars in government procurement projects.

The Justice Dept. unsealed complaints Apr. 19 in U.S. District Court for the Eastern District of Arkansas in Little Rock, charging the four companies with fraud and conspiracy in their attempts to win lucrative government contracts. Prosecutors also made public six whistleblower lawsuits that had been filed under seal in September, 2004, by former Accenture employee Norman Rille and Neal Roberts, a onetime partner with Deloitte & Touche who has investigated alliances between technology vendors.

The lawsuits accuse at least a dozen technology vendors of operating rebate and commission programs, referral systems, and strategic alliances that they kept secret from the government agencies that bought their systems or followed their advice. The practice has been going on in some cases for a decade, the lawsuits claim. The Justice Dept. is seeking treble damages plus civil penalties.

Vigorous Defense Promised

Justice is expected to join more cases in the coming weeks, according to people familiar with the investigation. "I don't think you've seen the end of it," says Von Packard, a partner at Packard, Packard & Johnson in Los Altos, Calif., one of the firms representing the plaintiffs.

Accenture spokeswoman Roxanne Taylor says the company will vigorously defend itself. "We believe we have acted appropriately, and we'll fight the whole thing. We intend to defend our position, and expect to prevail," Taylor says.

Hewlett-Packard said in a statement that it did nothing wrong. "HP is proud to partner with the government and is confident its business practices are appropriate," HP spokeswoman Emma Wischhusen said in a written statement. "We plan to vigorously defend this action and look forward to demonstrating that HP has done nothing wrong."

Some Companies Dropped

The Justice Dept.'s involvement is significant. The original cases were filed under the False Claims Act, which allows individuals to bring suit on behalf of the U.S. in return for up to one-third of any damages recovered. Most cases proceed in civil court without the federal government's involvement. U.S. Attorneys often save their prosecutorial muscle for false-claims cases in which significant money is at stake or where evidence of wrongdoing is particularly strong. The U.S. joins only about 22% of false-claim cases but recovers about 98% of claims, according to Taxpayers Against Fraud, a watchdog group based in Washington.

According to court documents, the original six civil cases Rille and Roberts filed will proceed against Cisco Systems (CSCO), Electronic Data Systems (EDS), SAP (SAP), Oracle (ORCL), SeeBeyond Technology, and Dell (DELL). At least five other defendants remain cloaked under court seal, including one identified in court documents as a wholly owned subsidiary of IBM (IBM).