(Sept 25): German software developer SAP SE, product reseller Carahsoft Technology Corp and other companies are being probed by US officials for potentially conspiring to overcharge government agencies over the course of a decade.

Since at least 2022, Justice Department lawyers have been looking at whether SAP — which makes accounting, human resources, supply chain and other business software used across the globe — illegally conspired with Carahsoft to fix prices on sales to the US military and other parts of the government, according to federal court records filed in Baltimore.

The civil investigation, which hasn’t previously been reported, poses a legal risk to a top technology vendor to the US government and to Germany’s most valuable company as its shares are soaring.

The review also shines an even greater light on Carahsoft, a powerful vendor of software whose offices in Virginia were raided on Tuesday by FBI agents and military investigators.

Carahsoft spokesperson Mary Lange described the search as “an investigation into a company with which Carahsoft has done business in the past.” It’s not clear if the search is related to the investigation of SAP. Lange and other Carahsoft representatives declined to answer detailed questions.

SAP spokesperson Monika Schaller declined to comment.

SAP shares dropped 4% to €198.32 in Frankfurt trading at 9:14am on Wednesday. The shares have increased 42% this year.

The long-running civil probe is focused on the companies possibly rigging the market for the more than US$2 billion (RM8.3 billion) worth of SAP technology that the US government has purchased since 2014, according to the court records. They show prosecutors are also examining the role of other software resellers and a unit of Accenture PLC, a giant management and technology consulting firm.

Many investigations end without any formal accusations of wrongdoing.

Accenture spokesperson Peter Soh said the subsidiary, Accenture Federal Services LLC, “is responding to an administrative subpoena and is cooperating with the DOJ.” The Justice Department didn’t respond to requests for comment.

The Justice Department classifies bid rigging as a form of fraud that involves an agreement among competitors as to who will be the winning bidder.

The investigation came to public light in an ongoing court fight between the prosecutors and Carahsoft over the closely held firm’s handling of a legal demand for documents. While many records in that separate proceeding are sealed or heavily redacted, unredacted versions of documents describing the underlying investigation were also publicly available.

It’s unclear exactly when prosecutors began examining the relationship between SAP, which has its headquarters in Walldorf, Germany, and Carahsoft, based in Reston, Virginia. But by June 2022 prosecutors had sent Carahsoft a demand to turn over documents and provide information related to potential violations of the False Claims Act.

The civil investigative demand — which was among the unredacted documents obtained by Bloomberg News — states that prosecutors are examining whether SAP, Carahsoft and other firms made false statements to the Department of Defence by coordinating bids and prices for “SAP software, cloud storage, and related hardware and services.” The document directs Carahsoft to produce a wide array of emails, text messages, contracts, staff lists and other information related to its sale of SAP software.

More than a year later, federal prosecutors sued Carahsoft, seeking to have a federal judge in Baltimore enforce the demand and alleging that the company has “obstinately refused to provide this basic information.” Back-and-forth litigation in the case — much of it sealed from public view — continued up to last Friday, when it was assigned to a new magistrate judge for pretrial fact- finding known as discovery.

One of Carahsoft’s lawyers, Richard Conway, declined to answer questions about the case, the civil investigation or the FBI search of his client’s office.

“I don’t discuss such matters in the press,” he said when reached by phone Tuesday.

In response to questions about the FBI search, Lange said Carahsoft is “fully cooperating on this matter” and “operating business as usual.”

Since its founding in 2004, Carahsoft has grown into a dominant player in the government technology procurement market. Last year, it ranked 45th on Forbes’ list of the largest private companies in the US, with US$11 billion in estimated revenue and more than 2,400 employees.

Among all federal vendors of IT products, Carahsoft holds the second-highest value of contracts directly with the government, totalling US$3.5 billion since the beginning of fiscal 2020. Only Dell Technologies Inc has more revenue.

SAP technology is a big chunk of this business. Carahsoft received more than 600 federal contracts for SAP tech worth more than US$990 million and “facilitated” as much as US$1 billion more in additional sales, prosecutors said in court filings.

It’s unclear what portion of these sales prosecutors believe might have been shaped by bid rigging. The False Claims Act allows the government to recover up to three times its damages plus a penalty.

Both SAP and Carahsoft have had other run-ins with the Justice Department.

In 2015, Carahsoft and VMware LLC agreed to pay US$75.5 million to resolve allegations in a False Claims Act lawsuit accusing them of overcharging the government for VMware’s software and services from 2007 to 2013, according to a statement from the department.

In January, SAP agreed to pay more than US$220 million to resolve a foreign bribery investigation by US authorities. The company entered into a three-year, deferred-prosecution agreement with the Justice Department after it was charged in a pair of schemes to bribe government officials in South Africa and Indonesia.

Earlier this month, German prosecutors opened a criminal probe into the company’s chief technology officer, who is stepping down due to “inappropriate” behaviour.

The new investigation comes to light as SAP’s share price has been hitting record highs amid a corporate restructuring. This year, chief executive officer Christian Klein has cut jobs and spending at the company, even as other executives have left or announced their departures in recent months.

Uploaded by Magessan Varatharaja