VMWare Settles FCA Allegations for $75 Million Following Five Year Investigation

Software company VMWare has agreed to pay $75 million to settle claims it engaged in illegal price-fixing misconduct.
Image source: Wikimedia Commons

Government contract work can be extremely lucrative, providing companies with a regular stream of income and dependable job security for their employees. Accordingly, the risk for rampant fraud and abuse of taxpayer resources is also very common, particularly when it comes to adhering to the ironclad provisions in the government’s contractual agreements.

One of the hallmarks of performing work as an independent contractor for the federal or state government is offering the lowest possible prices to ensure maximum efficiency and economy. In most agreements, contractors must promise to offer identical discounts and price incentives as offered to private customers and clients, and they are not permitted to price gouge the government agency paying for the services. Other common terms include requiring the employment of qualified individuals to perform the work and accepting overseas goods and services only from specified nations.

In today’s case,^[1] we look at the details of a recent settlement involving software giant VMWare – which was engaged by the federal government to provide software services for the U.S. Department of Defense. The case was originally launched by a courageous whistleblower who ultimately experienced severe retaliation measures – and even claimed he feared for his life – following the report. As a result of his willingness to come forward, the whistleblower will receive an undisclosed portion of the settlement, which is one of the largest ever reached between the Department of Defense and a technology company under the False Claims Act.

Details of the alleged fraud by VMWare

Based in Palo Alto, California,^[2] software giant VMWare is one of the largest software companies in the United States. The company specializes in the creation of virtualization software, which is useful to the U.S. military for purposes of utilizing simulators and other necessary virtual training experiences. Also implicated in the lawsuit is VMWare’s subsidiary Carahsoft, which is alleged to have been created solely for the purpose of insulating VMWare from liability. However, this allegation has not been substantiated.

During the period in question, the allegations reveal that VMWare – despite promising to offer the federal government the same price offered to commercial clientele – overcharged the Department of Defense for virtualization software and failed to offer the same discounts it offered to other customers. Upon bringing these allegations to the attention of VMWare superiors, the whistleblower, who is also the former Vice President, was immediately terminated.

The U.S. Attorney General’s Office said in a statement, “Today’s settlement demonstrates our continuing vigilance to ensure that those doing business with the government give the taxpayers a fair deal….Government contractors who seek to profit improperly at the expense of taxpayers face serious consequences.”

The U.S. Attorney’s Office similarly commenting, stating, “Transparency by contractors in the disclosure of their discounts and prices offered to commercial customers is critical in the award of GSA Multiple Award Schedule contracts and the prices charged to government agency purchasers….”

Contact Berger Montague today

If you are aware of possible fraud ongoing pursuant to a government contract, please do not hesitate to contact Berger Montague as soon as possible.