Tuesday, March 3, 2009

Feds scrutinize EMC over contract ethics

By Galen Moore

Two federal agencies are investigating whether EMC Corp. (NYSE: EMC) made improper paymens kickbacks to business partners and middlemen that use its products in contracts with the federal government, the Hopkinton data storage company disclosed in a regulatory filing yesterday.

EMC is cooperating with investigations by both the U.S. Department of Justice and the General Services Administration, and it is negotiating to resolve the matter without admitting guilt or liability, the company stated in a disclosure of legal proceedings included with its annual report filed with the U.S. Securites and Exchange Commission. (http://www.sec.gov/Archives/edgar/data/790070/000104746909002025/a2190121z10-k.htm)

The investigation focuses on EMC’s relationships with systems integrators – government contractors who pull together products from a variety of IT providers to build large government computer networks. It is customary for firms to provide cash incentives for system integrators to use certain products. However, the government is investigating whether EMC’s payments violate the federal False Claims Act.

If the investigation turns up evidence of wrongdoing, EMC could be barred from doing further business with the government and ordered to pay triple damages.

“We believe that we have meritorious factual and legal defenses to the allegations raised and, if the matter is not resolved and proceeds to litigation, we intend to defend vigorously,” the company said in its disclosure statement.