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7/29/2010
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Oracle Sued By Justice Department For Fraud

The suit contends Oracle misrepresented its commercial sales practices to give government customers deals inferior to those offered to commercial customers.

The Justice Department has sued Oracle, accusing the company of defrauding the government in a software contract valued at hundreds of millions of dollars in sales.

The department filed the complaint Thursday. The suit contends Oracle misrepresented its commercial sales practices in order to give government customers deals that were inferior to those given to commercial customers.

"We take seriously allegations that a government contractor has dealt dishonestly with the United States," Assistant Attorney General Tony West said in a statement. "When contractors misrepresent their business practices to the government, taxpayers suffer."

Oracle did not respond to a request for comment in time for this writing.

In filing the suit, the Justice Department is intervening in a May 2007 lawsuit filed originally by Paul Frascella, senior director of contract services at Oracle. The suit accuses Oracle of using a "scheme to defraud the United States by failing to disclose deep discounts" that it offered to its most favored commercial customers. The omission led to the government paying 10s of millions of dollars in overcharges.

Frascella brought the suit under the False Claims Act, which allows private citizens to sue a company on behalf of the federal government. Such whistleblower suits entitle plaintiffs to a portion of the damages. In this case, Frascella is seeking 25%.

According to the government, federal regulations entitled it to the best price Oracle gave its most favored customers. This was not done during the life of the software contract that ran from 1998 to 2006, prosecutors allege. Oracle negotiated the contract with the General Services Administration.

The government suit is only the latest in a series of similar cases. In May, EMC reached a settlement with the Justice Department to pay the government $87.5 million to settle similar charges, and NetApp reached a $128 million settlement with the government in April 2009. Oracle itself agreed in October 2006 to pay the government $98.5 million to settle a case in which PeopleSoft -- an Oracle acquisition -- was accused of providing false pricing information to the GSA.

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