SAP, Carahsoft Probe expands to work with nearly 100 agencies

U.S. prosecutors are expanding an investigation into potential price-fixing by German software maker SAP SE and technology reseller Carahsoft Technology Corp., seeking to scrutinize the companies’ work with nearly 100 government agencies, according to new court filings outlining the scope of the investigation. is much larger than previously known.

The Justice Department sent Carahsoft a legal request for documents and information about 94 civilian government agencies it did business with for SAP products, according to a document filed Tuesday in federal court in Baltimore. In it, the company characterized the prosecutors’ request as a “dramatic expansion” of a civil investigation already examining whether the companies overcharged the military and other parts of the government for more than $2 billion worth of SAP technology purchases since 2014.

The previously unreported scope of the US government investigation signals the degree of legal risk it poses to a leading technology supplier and Germany’s most valuable company. Many investigations end without formal charges of wrongdoing.

SAP shares fell 1.6 percent to 200.60 euros at 9:52 a.m. in Frankfurt on Thursday, after earlier falling as much as 2.3 percent. Shares are up 46% this year through Wednesday.

An SAP spokeswoman, Joellen Perry, said the company and its US unit, SAP National Security Services, Inc., each received document requests from the Department of Justice in August 2022 and were cooperating with the civil investigation. The requests were “broad and seek documents relating to the bidding and pricing practices of SAP and its resellers (including Carahsoft), but the information SAP has produced to date has been more narrowly focused,” Perry said.

An attorney for Carahsoft, William Lawler III, declined to comment. On Tuesday, Lawler asked a judge to seal records describing the broad scope of the civil investigation, saying it included “several unsupported substantive allegations about Carahsoft and its business partners.”

A Justice Department spokesman also declined to comment.

In June 2022, the Justice Department requested information from Carahsoft about whether the company and SAP overcharged the US government by making false statements to the Department of Defense, according to court records. Investigators later asked Carahsoft to turn over records related to the Department of Agriculture, the Department of Labor, the Office of Personnel Management and the Centers for Disease Control and Prevention, Lawler wrote in Tuesday’s filing. The company refused because it would miss a deadline to produce the other records, he said.

Prosecutors responded in July by sending Carahsoft another subpoena, expanding the investigation to cover “the entire US government for SAP products or services through SAP or resellers,” Lawler said in court. The request covered 94 agencies, he said, and Carahsoft tried unsuccessfully to get prosecutors to narrow it.

Last week, FBI and Department of Defense investigators raided Carahsoft’s office in Virginia. Bloomberg News also disclosed the Justice Department’s civil investigation last week.

It is unclear whether the FBI’s search is related to the civil investigation involving Carahsoft and SAP. A SAP spokesperson previously said the company is not involved in any criminal investigation related to Carahsoft and has no information about the “latest developments” regarding its vendor.

A Carahsoft spokeswoman, Mary Lange, described the search as “an investigation into a company that Carahsoft has done business with in the past” and said the company is cooperating with the FBI’s investigation.

The broad scope of the civil case became public in a lawsuit prosecutors filed against Carahsoft in 2023 over the firm’s tight-lipped handling of a government request for documents a year earlier. In their recent filing, prosecutors wrote that the company “persisted in its long pattern of delay and non-compliance.”

The Justice Department’s investigation was brought under the False Claims Act, which allows the government to recover up to three times its damages plus a penalty. However, lawsuits are often settled for smaller amounts.

Under US and German law, companies must disclose investigations if the expected impact on their business is significant and likely to significantly change their share price.

SAP spokesman Daniel Reinhardt said last week that the German company follows legal risk disclosure rules and that, based on “the current circumstances, there was and still is no requirement to report the individual case.”

Prosecutors looking into the SAP sales are also looking into the role of other companies, including a unit of technology and management consulting giant Accentuate. An Accenture spokesman previously said the company was cooperating with federal investigators. The company said in regulatory filings that Accenture Federal Services made a voluntary disclosure to the U.S. government that led to a civil and criminal investigation into whether one or more employees made inaccurate submissions to the government about the company’s offerings .

Accenture spokeswoman Deirdre Blackwood said “the two situations are unrelated”.

Copyright 2024 Bloomberg.