Oracle Faces False Claims Act Suit Over Discounting

Oracle Corp., the world’s second- biggest software maker, was sued today by the U.S. Justice Department, which claimed the company overcharged the government on a contract worth hundreds of millions of dollars.

Oracle defrauded the government on a software contract with the General Services Administration between 1998 and 2006, according to the complaint. The company failed to give the government the same discounts it offered its most favored commercial customers, the Justice Department claims.

“Oracle’s false statements and fraudulent conduct in the negotiation and performance of the contract led to the submission of false claims for payment to the United States,” according to the complaint, filed in federal court in Alexandria, Virginia.

The U.S. lawsuit follows its intervention in a case filed in 2007 by Paul Frascella, a former Oracle employee who made similar claims. The False Claims Act lets private citizens sue on behalf of the government and share in any recovery. The Justice Department says it is cracking down on procurement fraud.

‘Taxpayers Suffer’

“We take seriously allegations that a government contractor has dealt dishonestly with the United States,” Tony West, assistant attorney general for the Justice Department’s civil division, said in a statement. “When contractors misrepresent their business practices to the government, taxpayers suffer.”

Deborah Hellinger, a spokeswoman for Redwood City, California-based Oracle, didn’t return a phone call and e-mail seeking comment.

A Justice Department statement said the contract was worth hundreds of millions of dollars, while the complaint said Oracle reported $1.08 billion in sales for software licenses and maintenance under the contract.

The complaint doesn’t specify an amount of damages, saying it would be determined at trial. Frascella’s complaint, which was unsealed April 2 when the government joined his case, said Oracle overcharged the government by tens of millions of dollars. The government’s complaint offers more detail on the contract.

21 Agencies

It claims that 21 different executive agencies made purchases, including the Treasury, Defense and State departments.

The GSA negotiated so-called Multiple Award Schedule pacts with Oracle, according to the complaint. Once companies secure such contracts, government agencies may order products on GSA schedules without going through elaborate procurement programs.

In return, the government is supposed to get discounts equal to or greater than the discount given to that firm’s most favored customer, and contractors are supposed to report such discounts, according to the complaint.

The complaint claims that starting in 1997, Oracle falsely told the GSA that it was getting the best prices when it was not.

In October 2006, Oracle paid $98.5 million to settle a False Claims Act lawsuit over GSA Multiple Award Schedule pricing disclosures at PeopleSoft Inc., a software maker. Oracle bought PeopleSoft in January 2005 for $10.3 billion.

The complaint, filed in 2003 by whistleblower James Hicks, was joined in 2006 by the Justice Department.

Oracle fell 58 cents to $23.70 today in Nasdaq stock market trading.

The case is U.S. v. Oracle Corp., 1:07-cv-00529, U.S. District Court, Eastern District of Virginia (Alexandria).

To contact the reporters on this story: Justin Blum in Washington at jblum4@bloomberg.net David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net.

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