The Federal government has just announced in a statement that Data Storage giant, EMC is being investigated over its pricing and improper contract practices.

EMC revealed in its annual report with the SEC several days ago that the US justice Department had filed a lawsuit against the company, writes Samantha Sai for

According to the Justice Department press release, the lawsuit accuses EMC of failing to disclose its commercial pricing practices during negotiation of its General Services Administration (GSA) contracts.

It also says EMC provided improper payments and other things of value to Systems Integrators and other Alliance Partners on contracts with government agencies.

The lawsuit alleges that EMC tendered false claims for hardware and services on “numerous government contracts from the late 90s to the present”.

It is believed that the lawsuit is based on insider information as the suit was filed in US District Court in Little Rock, Ark under the Whistleblower provisions of the False Claims Act.

Among other allegations in the lawsuit are that 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 Justice Department further states "that these alliance relationships and the resulting alliance benefits paid by EMC amount to kickbacks and undisclosed conflict of interest relationships".

The government press release also declares that EMC has been charged with making false statements to the General Accounting Service about its profit-making pricing customs to collect better proceeds on contracts, "thereby overcharging federal agencies purchasing EMC products and services".

The report filed by EMC to the SEC mentions that the Justice Department is scrutinizing the company’s fee planning with systems integrators and other associates in federal government dealings.

It is also looking at the company’s "compliance with the terms and conditions of certain agreements pursuant to which we sold products and services to the federal government, including potential violations of the False Claims Act".

The investigation partly covers a previous audit by the GSA "concerning our recordkeeping and pricing practices under a schedule agreement we entered into with GSA in November 1999, which, following several extensions, expired in June 2007".

To date, EMC says it has worked together with the inquiry and assessment and engaged in discussions aimed at resolving this matter without any admission or finding of liability on the part of EMC.

"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.

"If the matter proceeds to litigation, possible sanctions include an award of damages, including treble damages, fines, penalties and other sanctions, including suspension or debarment from sales to the federal government."

To keep things in perspective, EMC is not the first IT Corporation to face such allegations. Just a year ago IBM did clear up similar charges with a $ 3 million fine. Other companies that have gone through the same process include Accenture, HP and Sun Microsystems.

StorageIO Group founder and senior analyst Greg Schulz speculates if the new Administration is just getting started.

"If that’s the case, one has to wonder who’s next, and how big the boiler will be when the government finally gets around to the really big fish," he said.

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