German software developer SAP SE, product reseller Carahsoft Technology Corp. and other companies are under investigation by U.S. authorities for a possible years-long conspiracy to overcharge government agencies.
According to records filed in federal court in Baltimore, Justice Department lawyers have been investigating since at least 2022 whether SAP, which makes accounting, human resources, supply chain and other business software used around the world, illegally conspired with Carahsoft to fix prices on sales to the U.S. military and other branches of the government.
The civil investigation, which has not previously been reported, exposes both the U.S. government and Germany’s most valuable company as a top technology vendor to legal risks. Stock prices are soaring.
The review also gives further attention to Carahsoft, a large software vendor with offices in Virginia. Attacked The investigation was carried out by FBI and military agents on Tuesday.
Carahsoft spokeswoman Mary Lange described the search as “an investigation into companies with which Carahsoft has done business in the past.” It’s unclear whether the search is related to the SAP investigation. Lange and other Carahsoft representatives declined to answer specific questions.
In an emailed statement, SAP spokesman Daniel Reinhardt said the company has cooperated with the Justice Department’s civil investigation “from the beginning.” The company is not involved in any criminal investigation into Karasoft and does not have information about “latest events” regarding the vendor, he said.
SAP shares fell 2.4 percent to close at 201.80 euros in Frankfurt on Wednesday. The stock has risen about 44 percent this year.
News of the investigation also had a ripple effect on the stock prices of ServiceNow and Okta, which both had “more than 40% of their disclosed federal contract awards paid through Karasoft,” according to a Piper Sandler memo. ServiceNow shares fell 3.5% on Wednesday. Okta shares were down 0.7%.
Civil Investigation
The lengthy civil investigation focuses on possible market manipulation by the two companies for more than $2 billion in SAP technology purchased by the U.S. government since 2014, according to court records. Prosecutors are also investigating the role of other software resellers and a subsidiary of management and technology consulting firm Accenture.
Many investigations end without any formal accusations of wrongdoing.
Accenture spokesman Peter So said the company’s subsidiary, Accenture Federal Services LLC, was “responding to the administrative subpoena and is cooperating with the Department of Justice.” The Justice Department did not respond to a request for comment.
The Department of Justice classifies bid rigging as a type of fraud in which competitors agree on who will win a bid.
The investigation became public amid an ongoing legal battle between prosecutors and Karasoft Inc. over how the privately held company handled legal document requests. Many of the records in that separate case are sealed or heavily redacted, but unredacted versions of documents describing the underlying investigation have been made public.
False Claims Act
It’s unclear when prosecutors began investigating the relationship between Walldorf, Germany-based SAP and Reston, Virginia-based Carahsoft, but by June 2022, prosecutors had requested documents and information from Carahsoft related to possible violations of the False Claims Act.
The civil investigative demand, included among the unredacted documents obtained by Bloomberg News, said prosecutors were looking into whether SAP, Carahsoft and other companies misrepresented themselves to the Defense Department by coordinating bids and prices for “SAP software, cloud storage, and related hardware and services.” The document directs Carahsoft to turn over various emails, text messages, contracts, staff lists and other information related to the sale of SAP software.
More than a year later, federal prosecutors sued Karasoft, getting a federal judge in Baltimore to enforce their demands, alleging that the company “stubbornly refused to provide this basic information.” Litigation in the case, much of it closed to the public, continued until last Friday, when the case was assigned to a new magistrate judge for pretrial fact-finding, known as discovery.
One of Karasoft’s lawyers, Richard Conway, declined to answer questions about the case, the civil investigation or the FBI search of his client’s offices.
“I don’t discuss such issues in the press,” he said in a phone interview Tuesday.
In response to a question about the FBI investigation, Lange said Karasoft is “cooperating fully in this matter” and is “conducting business as usual.”
Karasoft dominates
Since its founding in 2004, Carahsoft has grown to become a major player in the government technology procurement market. Last year, the company was ranked 45th on Forbes magazine’s list of America’s largest private companies, with estimated revenue of $11 billion and more than 2,400 employees.
Among federal IT vendors, Karasoft has the second-highest direct government contract value, with $3.5 billion in contracts since the start of fiscal year 2020, according to Bloomberg Government Data. Only Dell Technologies has more revenue than Karasoft.
SAP technology was a big part of the business: Karasoft won more than 600 federal contracts for SAP technology, collectively earning more than $990 million and “facilitating” as much as $1 billion in sales, prosecutors said in court documents.
It’s unclear how many of those sales prosecutors believe were collusive. The False Claims Act allows the government to seek up to three times the amount of damages, plus penalties.
Both SAP and Carasoft have had previous run-ins with the Department of Justice.
In 2015, Carahsoft and VMware LLC agreed to pay $75.5 million to settle allegations in a False Claims Act lawsuit that the companies overcharged the government for VMware software and services between 2007 and 2013, the investigative firm said. statement From the department.
Deferred prosecution
In January, SAP $220 million The company entered into a three-year deferred prosecution agreement with the Department of Justice after being indicted on two counts of schemes to bribe government officials in South Africa and Indonesia to resolve a foreign bribery investigation by U.S. authorities.
Earlier this month, German prosecutors opened a criminal investigation into the company’s chief technology officer. stepping He was taken down for “inappropriate” behavior.
SAP’s shares had been at record highs amid a corporate restructuring. Chief Executive Christian Klein has cut staff and spending at the company this year as other executives have left or announced departures in recent months.
(Updates stock price movement in eighth paragraph; an earlier story corrected the spelling of an SAP spokesperson’s name.)
