Oracle Shareholder Scorches Ellison & Board

SAN FRANCISCO (CN) - A shareholder claims directors of Oracle Corp., the "world's largest software company," exposed the company to "billions of dollars in potential liability" by overcharging the federal government for decades - corporate misbehavior that already has cost the company more than $100 million in settlements.

Scott Ozaki claims Oracle's "brazen overcharging of the federal government" has continued for almost a decade, in violation of the False Claims Act, conduct that was ratified by CEO Larry Ellison and 10 other defendant board members.

Ozaki says a longtime Oracle employee, Paul Frascella, filed a qui tam whistleblower suit against the company in 2007, in which the federal government intervened in 2010, seeking treble damages. A federal judge in Virginia refused to dismiss the suit in January, Ozaki says.

He adds that Oracle paid $8 million in May 2005 to settle a whistleblower suit accusing it of overcharging the federal government for computer training, and agreed to a $98.5 million False Claims Act settlement in October 2006 involving a subsidiary, PeopleSoft. In that case, Deputy Attorney General Paul McNulty said "that the government 'paid vastly inflated prices' for computer software and maintenance for human resources and financial systems for 60 federal agencies," according to the complaint.

Ozaki claims that Oracle's Board of Directors "expressly or tacitly approved this modus operandi, and, together with the company's senior management, breached their fiduciary duties to Oracle."

He says the near decade of misbehavior "resulted in damage to Oracle's reputation, goodwill, and standing in the business community," and "exposed the company to billions of dollars in potential liability for violations of law, including the FCA [False Claims Act], breach of contract, constructive fraud, fraud by omission, payment by mistake, and unjust enrichment."

Although Oracle was required to charge the federal government "the lowest price it charged any of its private customers, Oracle fleeced the federal government by hundreds of millions of dollars by overcharging for these products, in some cases overcharging the federal government by more than 50 percent," Ozaki claims.

The federal government bought about $1.08 billion in products from Oracle from 1998 to 2006, $775 million of it from 2001 to 2006, according to the complaint.

Ozaki says that in January he "sent a litigation demand to the board concerning the wrongdoing" and has repeatedly demanded that "the board initiate legal proceedings against the persons responsible for harming the company." But he says the board refused to investigate his demand and rejected it "without reaching any conclusion on its merits."

He claims the board excused its rejection by claiming that Ozaki "did not provide stock documentation of his Oracle shareholder status spanning the entire length of wrongdoing." Ozaki says that that excuse is "unfounded in law, made in bad faith, and really just a pretense," and that rather than "protecting the company's interests and prosecuting the claims against wrongdoers to the fullest, the board has, instead, decided to attempt to block and delay the subject of the demand from being investigated and its wrongdoing from coming to light and another derivative action from moving forward."

Named as defendants in the derivative complaint are Lawrence Ellison, Safra Catz, Jeffrey Henley, Michael Boskin, H. Raymond Bingham, Donald Lucas, Jeffrey Berg, Bruce Chizen, Hector Garcia-Molina, Naomi Seligman, and George Conrades.

Ozaki seeks injunction directing Oracle to "take all necessary actions to reform and improve its corporate governance and internal procedures." He seeks disgorgement of all profits and benefits paid to the defendants - more than a quarter of a billion dollars to Ellison alone - and damages for breach of fiduciary duty, waste of corporate assets, and unjust enrichment.

He is represented by Brian Robbins with Robbins Umeda of San Diego.

Follow @jamierossCNS

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