By Jessica Dye
NEW YORK, June 27 FalconStor Software Inc
will pay $5.8 million to resolve criminal and civil
charges that it bribed JP Morgan Chase Bank NA
executives to obtain $12 million in software
contracts, federal prosecutors said on Wednesday.
According to a criminal complaint filed in Brooklyn federal
court, FalconStor offered more than $300,000 in restricted
FalconStor shares, stock options, gambling vouchers, gift cards
and golf perks to JP Morgan executives in Columbus, Ohio, in
exchange for $12.2 million in software contracts.
FalconStor, a publicly traded company on Long Island, New
York, that sells data storage and protection products, was also
charged with falsifying records to cover up the bribes. It
labeled payments to JP Morgan executives as "employment bonuses"
or "compensation to an advisor," court documents said.
The company admitted the allegations in the criminal
"We are happy we were able to cooperate with the authorities
and reach a settlement to put this behind us," said FalconStor
CEO James McNeil.
McNeil said the three FalconStor employees involved in the
investigation have left the company. One of them is former
FalconStor CEO Reijane Huai, who resigned from the company amid
an internal investigation into improper payments. He was found
dead of an apparent suicide in September.
A spokeswoman for JP Morgan did not immediately reply to a
request for comment.
The unnamed JP Morgan employees were in the global
technology infrastructure division, based in Columbus, Ohio,
which purchases electronic data storage products for the
According to the complaint, FalconStor employees lavished
thousands of dollars in gift cards, stock and other perks on the
JP Morgan executives and their relatives. On one occasion,
FalconStor paid one of its salespeople a $240,000 bonus with
instructions to deposit $100,000 of that in a gambling account
in Las Vegas for one of the JP Morgan executives, according to
FalconStor has entered into a deferred prosecution agreement
with the U.S. attorney's office in Brooklyn, in addition to
forfeiting $2.9 million, the office said. As part of the
agreement, FalconStor will make several corporate governance
reforms, including splitting the roles of chief executive
officer and chairman of the board of directors and revising its
Pursuant to the agreement, the U.S. government will defer
prosecution of FalconStor for 18 months. If FalconStor complies
with the deal, the criminal charges will be dismissed, federal
The U.S. Securities and Exchange Commission filed parallel
civil charges against FalconStor on Wednesday. FalconStor agreed
to pay $2.9 million in civil penalties in a settlement that must
be approved by the court.
Falconstor was sued by its shareholders in a 2010
class-action lawsuit accusing it of covering up improper
payments, thereby allowing its stock to trade at artificially
high prices between 2009 and 2010. That case is still pending in
Brooklyn federal court.