Updated from 12:53 p.m. ESTThe Department of Justice has launched legal action against EMC ( EMC), alleging that the storage giant paid kickbacks to its partners and overcharged federal agencies. EMC made false statements to the government's General Services Administration (GSA) about its commercial pricing practices in order to obtain a higher price on its contracts, according to the suit. Officials also claim that EMC made "improper payments" to systems integration consultants and partners on government contracts. "These alliance relationships and the resulting alliance benefits paid by EMC amount to kickbacks and undisclosed conflict of interest relationships," alleges the Justice Department, in a statement. The Justice Department, which is keen to clean up the government procurement, is intervening in an earlier lawsuit brought by two whistleblowers. The suit was originally filed in the U.S. District Court in Little Rock, Ark., by Norman Rille and Neal Roberts under the "qui tam," or whistleblower, provisions of the False Claims Act. The "qui tam" statute enables a private party to file legal action on behalf of the U.S. and receive a portion of what is recovered in the lawsuit. Rille and Roberts allege that EMC submitted false claims to the U.S. for IT hardware and services on "numerous" government contracts from the late 1990s to the present. EMC told TheStreet.com it will "vigorously" defend itself against the allegations. "We did not make improper payments to business partners and did not violate the False Claims Act," said EMC's spokesman Patrick Cooley. In a regulatory filing, EMC also down-played the financial impact of the legal action. "Management does not expect the results of any of these actions to have a material adverse effect on our business, results of operations, or financial condition," it said.
The Justice Department's lawsuit barely put a dent in EMC shares, which slipped 3 cents, or 0.3%, to $10.11 Tuesday, as the Nasdaq rose 0.23%. EMC, which competes with the likes of NetApp ( NTAP), Hewlett-Packard ( HPQ) and IBM ( IBM), announced a plan to shed about 7% of its workforce earlier this year but has forecast of a second-half pickup in IT spending.