Finance and Economics APP learned that the US Department of Justice is investigating whether SAP (SAP.US) and its dealer Carahsoft Technology Corp. have illegally conspired to manipulate sales prices to the US military and other government departments over the past decade. This civil investigation has been ongoing since 2022. This poses a legal risk to SAP, one of Germany's most valuable companies and a top technology supplier to the US government. In addition, Carahsoft's office was raided by FBI agents and military investigators, further exposing the company's scandal.

According to federal court documents filed in Baltimore, Justice Department lawyers have been investigating since 2022 whether SAP and Carahsoft have illegally conspired to manipulate sales prices to the US government. SAP is a globally renowned commercial software producer, with products including accounting, human resources, and supply chain management software. This investigation poses significant legal risks to SAP, especially as its stock price is soaring.

Carahsoft, as a powerful software supplier, had its office in Virginia raided by FBI agents and military investigators on Tuesday. Although Carahsoft spokesperson Mary Lange described the raid as "an investigation into companies that Carahsoft has had business dealings with in the past," it is currently unclear whether this raid is related to the investigation of SAP. Lange and other Carahsoft representatives declined to answer detailed questions.

SAP spokesperson Monica Schale also declined to comment. In the wake of this news, SAP fell by 3.34% to $223 in pre-market trading. Nevertheless, the stock has risen 42% so far this year.

Civil Investigation

A long-running civil investigation is delving into potential market manipulation activities involving SAP technology purchased by the US government worth over $2 billion since 2014. Court records show that prosecutors are investigating whether SAP and its dealers, including a department of the large management and technology consulting company Accenture, were involved in market manipulation behaviors.

Although many investigations end without formal charges of misconduct, this investigation has revealed the Justice Department's severe crackdown on bid rigging, which is a fraudulent practice involving agreements between competitors on winning bids.

The details of the investigation were exposed during a legal battle between prosecutors and Carahsoft, a minority-owned company involved in handling legal document requests. While many records related to the litigation have been sealed or heavily redacted, the unredacted version of the documents describing the basic investigation has also been made public.

Accenture spokesperson Peter Soh stated that its subsidiary, Accenture Federal Services LLC, "is responding to administrative subpoenas and cooperating with the Justice Department." The Justice Department has not commented on the matter.

This investigation is suspected of violating the False Claims Act.

US prosecutors are investigating possible improper relationships between German software giant SAP and its dealer Carahsoft, involving potential violations of the False Claims Act. By June 2022, prosecutors had requested Carahsoft to provide documents and information related to possible misconduct.

According to unredacted documents obtained by Bloomberg News, prosecutors are investigating whether SAP, Carahsoft, and other companies coordinated bids and prices of SAP software, cloud storage, and related hardware and services, making false statements to the Department of Defense. The document requests Carahsoft to provide a large amount of emails, text messages, contracts, employee lists, and other information related to the sale of SAP software.

Over a year later, federal prosecutors filed a lawsuit against Carahsoft, attempting to compel its compliance with requests, accusing the company of "stubbornly refusing to provide this basic information." Much of the litigation process in this case was confidential until last Friday when the case was assigned to a new magistrate judge for pretrial proceedings, including evidence disclosure.

Carahsoft's lawyer Richard Conway declined to comment on the case, civil investigations, or the FBI's search of its client's offices. In a phone interview, he stated, "I will not discuss such matters in the media."

Carahsoft spokeswoman Mary Lange stated in response to questions about the FBI investigation that Carahsoft is "fully cooperating with this matter" and "continuing business as usual". It is currently unclear when the prosecutor will begin investigating the relationship between SAP and Carahsoft, but the progress of the investigation indicates that the judicial authorities are actively pursuing possible misconduct.

Carahsoft's business may be severely impacted.

Since its establishment in 2004, Carahsoft has become a leading enterprise in the government technology procurement market. Last year, the company ranked 45th in the Forbes list of the largest privately held companies in the USA, with an expected revenue of $11 billion and over 2400 employees.

Among all federal IT product suppliers, Carahsoft ranks second in the value of contracts directly signed with the government, with a total amount reaching $3.5 billion since the beginning of the 2020 fiscal year, second only to Dell Technologies.

SAP technology is an important component of Carahsoft's business. Prosecutors pointed out in court documents that Carahsoft has obtained over 600 federal contracts for SAP technology, worth over $0.99 billion, and has "facilitated" additional sales of up to $1 billion. It is currently unclear how much of these sales may have been influenced by bid manipulation. Under the False Claims Act, the government can recover up to three times the losses plus fines.

Both SAP and Carahsoft have had conflicts with the Department of Justice. In 2015, Carahsoft and VMware LLC agreed to pay $75.5 million to settle allegations in a False Claims Act lawsuit, which accused them of overcharging the government for VMware software and services between 2007 and 2013.

This investigation may have a significant impact on Carahsoft's business, as well as legal risks for SAP. As the investigation progresses, both companies may face more legal challenges and potential financial losses.

SAP is facing multiple challenges.

In January of this year, SAP agreed to pay over 0.22 billion US dollars to settle the US authorities' investigation into its overseas bribery. The company was accused of bribing government officials in South Africa and Indonesia, and then signed a three-year deferred prosecution agreement with the US Department of Justice.

Recently, German prosecutors launched a criminal investigation against SAP's Chief Technology Officer, who resigned due to misconduct. The exposure of this new investigation comes as SAP's stock price reaches historic highs during the company's restructuring period.

This year, SAP's CEO Christian Klein implemented measures to reduce staff and expenses, while other executives have recently resigned or announced their impending departures. Despite facing legal and internal challenges, SAP's stock price seems to have not been greatly affected.