Oracle Agrees to Pay Up on Indian Fraud Claims

     SAN FRANCISCO (CN) – Oracle will pay $2 million to settle securities fraud claims related to an alleged secretly stashed side fund, a federal judge ruled.
     The Securities and Exchange Commission claimed in its complaint that the side fund “creat[ed] the potential for bribery and embezzlement.” Oracle allegedly violated the Foreign Corrupt Practices Act when employees of Oracle India Private Ltd. “secretly ‘parked’ a portion of the proceeds from certain sales to the Indian government and put the money to unauthorized use.”
     Under the settlement signed by U.S. District Judge Charles Breyer on Monday, Oracle must pay the SEC a $2 million fine, keep detailed records about future transactions and set up a system of internal controls to assure that transactions are authorized by management and are recorded as necessary to prepare accurate financial statements.
     The judgment further dictates that management must authorize all access to assets, and that Oracle must compare the recorded accountability of assets with existing assets on a regular basis. Should differences arise, Oracle must take appropriate action.
     Oracle did not admit any allegations in the complaint but it waived its right to appeal by accepting the judgment.
     The SEC had claimed that Oracle India employees steered payments from the side fund to purported local “vendors,” ostensibly for “marketing expenses.”
     “Several of the ‘vendors’ were merely storefronts that did not provide any services,” the SEC claimed.
     It claimed the scheme occurred between 2005 and 2007, and that Oracle failed to audit the distributors’ payments for proper use.
     “This control would have enabled Oracle to check that payments were made to appropriate recipients,” the complaint stated.
     The parked money was completely off the books, according to the SEC, creating “a risk that they potentially could be used for illicit means, such as bribery or embezzlement.”
     Regulators pointed to the example of Oracle India’s largest government contract, a $3.9 million deal with India’s Ministry of Information Technology and Communications, in May 2006.
     Oracle’s distributor accepted the full $3.9 million from the Indian government and sent about $2.1 million back to the California-based software company, according to the lawsuit. Oracle India employees allegedly told the distributor to keep $151,000 for its services and park the remaining $1.7 million in a side fund for “marketing development purposes.” Oracle India then gave the distributor eight invoices for payments to third parties, which turned out to be fake, the SEC claims.
     It noted that Oracle launched an internal investigation on a tip from its Asia division. Oracle India’s senior channel sales manager had resigned and left the company by November 2007, and Oracle fired four other Oracle India employees based on the investigation.
     Oracle has since taken “other remedial measures,” including conducting greater due diligence, barring the creation of side funds and severing its relationship with the distributor involved in the transactions, according to the SEC.
     Nonetheless, the SEC wanted Oracle to pay a civil fine for its alleged Exchange Act violations.
     Marc Fagel represented the SEC.

%d bloggers like this: