FalconStor to Pay $5.8 Million Over JPMorgan Bribe Claims

FalconStor Software Inc. agreed to pay $5.8 million to settle U.S. claims that it bribed executives at JPMorgan Chase & Co. (JPM)

Federal officials accused the Melville, New York-based data storage company of paying more than $300,000 in bribes to the bank’s executives in an effort to win $12 million in contracts. The company also falsified its books to cover up the scheme, according to a statement from the Justice Department.

FalconStor entered into a deferred prosecution agreement as part of its arrangement with the U.S. Attorney. A civil suit was also filed against the company over the allegations by the U.S. Securities and Exchange Commission. That action was also settled.

JPMorgan wasn’t accused of wrongdoing in either case. Jennifer Zuccarelli, a spokeswoman for the bank, declined to comment on the settlements.

“This has obviously been a very large distraction for the company and we’re pleased that we’re able to reach a settlement and move forward and conduct our business right,” FalconStor President and Chief Executive Officer Jim McNiel said in a phone interview.

From October 2007 to September 2010, FalconStor offered several JPMorgan technology executives bribes that included FalconStor stock, gift cards, golf memberships and gambling vouchers, according to a criminal complaint filed in Brooklyn federal court.

Licensing Contracts

In exchange for the bribes, JPMorgan entered into at least three licensing contracts for FalconStor software and related services, according to the complaint.

FalconStor was accused of violating the Travel Act, which bars interstate and foreign travel or transportation to aid racketeering enterprises, as well as the Securities Exchange Act of 1934.

The data storage company’s employees and officers who were involved in the scheme have either resigned or were terminated, according to a Justice Department statement.

JPMorgan has also fired employees implicated in the scheme, Assistant U.S. Attorney Patrick Sinclair said.

The criminal case is U.S. v. FalconStor Software Inc., 1:12-mj-00615, U.S. District Court, Eastern District of New York (Brooklyn). The SEC case is Securities and Exchange Commission v. FalconStor Software Inc., 1:12-cv-03200, U.S. District Court, Eastern District of New York (Brooklyn).

To contact the reporter on this story: Christie Smythe in New York at csmythe1@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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