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U.S. investigating SAP, Carahsoft for possible price-fixing

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German software developer SAP SE, product reseller Carahsoft Technology Corp. and other companies are being probed by U.S. 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 U.S. 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 U.S. government and to Germany’s most valuable company as its shares are soaring.

The review also shines an even greater light on Carahsoft, a large software vendor 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's corporate campus in Walldorf, Germany
A logo on an office at the SAP SE campus in Walldorf, Germany.

Alex Kraus/Bloomberg

SAP has been cooperating with the DOJ’s civil investigation “since the beginning,” spokesman Daniel Reinhardt said in an emailed statement. The German company is not involved in any criminal investigation related to Carahsoft and has no information about “the latest events” concerning its vendor, he said.

SAP shares dropped 2.4% to close at €201.80 in Frankfurt on Wednesday. The shares have risen about 44% this year. 

News of the probe also had knock-on effects for shares of ServiceNow Inc. and Okta Inc., which both “saw over 40% of disclosed federal contract dollars come through Carahsoft,” according to a note from Piper Sandler. Shares of ServiceNow fell as much as 4% on Wednesday. Okta shares declined as much as 1.7%.

Civil probe

The long-running civil probe is focused on the companies possibly rigging the market for the more than $2 billion worth of SAP technology that the U.S. 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, 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.

False Claims Act

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 Defense 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.”

Carahsoft dominant

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 U.S., with $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, totaling $3.5 billion since the beginning of fiscal 2020, according to Bloomberg Government data. 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 $990 million and “facilitated” as much as $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 $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.

Deferred prosecution

In January, SAP agreed to pay more than $220 million to resolve a foreign bribery investigation by U.S. 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” behavior. 

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. 

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On the move: HCVT hired CAS co-leader

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Grant Thornton names new CFO; CTCPA installs board of directors; and more news from across the profession.

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Tech news: Karbon Practice Management evolves into Practice Intelligence

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Automation platform Quadient announced the acquisition of Serensia, a French electronic invoicing platform provider accredited by the French government as a Partner Dematerialization Platform (PDP). With ownership of a Peppol access point—a secure gateway for document exchange—Quadient can now offer a compliant, end-to-end e-invoicing solution to the millions of companies across Europe that will be required to transition to electronic invoicing under upcoming regulatory mandates. … Accounting solutions provider Sage announced a partnership with CPA.com which licenses select AICPA resources to train Sage Copilot, its generative AI assistant designed to support accountants and finance teams with authoritative, context-aware guidance. The announcement was made at Sage Future, the company’s flagship global customer event, held this week in Atlanta. … Small business accounting platform Xero announced that users who have an account with payments company Stripe can now use Tap To Pay on iPhone, enabling Xero customers in the US with a Stripe account to seamlessly and securely accept in-person contactless payments with their iPhone and the Xero Accounting app — no additional hardware or payment terminal needed. Tap to Pay on iPhone enables businesses to accept all forms of contactless payments, including contactless credit and debit cards, Apple Pay, and other digital wallets. … Trust and security compliance automation solutions provider Scytale announced the acquisition of AudITech, a provider of Sarbanes Oxley (SOX) IT General Controls (ITGC) automation solutions, which integrates with a company’s IT General Control system and audits all controls and populations daily. This acquisition will enable Scytale to offer security, privacy, and AI compliance automation for standards like SOC 2, ISO 27001, and now SOX ITGC in one platform. … Business aviation solutions provider MySky is acquiring the State Tax Guide from Jet Support Services Inc (JSSI), significantly expanding the capabilities of its MySky Tax solution. This acquisition offers users comprehensive, accurate, and up-to-date U.S. state aviation tax information, which will soon be seamlessly embedded within the platform. … Accounting firm-focused payments solutions provider CPACharge announced a new partnership with SafeSend, part of Thomson Reuters. This new partnership will make it easier for tax and accounting firms to get paid as clients receive their tax returns, as well as allows firms to embed CPACharge directly into the workflow for SafeSend One, SafeSend’s flagship product.

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Trump said to be open to lowering SALT cap in GOP tax bill

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President Donald Trump told Senate Republicans he is open to a state and local tax deduction cap lower than the $40,000 in the House-passed version of his giant tax bill, a person familiar with the matter said. 

Trump signaled his position in a meeting with Senate Finance Committee Republicans on Wednesday, and the comments added momentum to Senate GOP efforts to enact a lower SALT cap. 

That push has led to resistance from the House, with Speaker Mike Johnson telling Bloomberg TV Thursday he is fighting to keep the $40,000 cap as it is. 

After the White House meeting Wednesday, Senate Finance Committee Chair Mike Crapo lamented about the cost of the House bill’s SALT cap. 

“There’s not a single Republican senator from New York, New Jersey or California, so there’s not a strong sentiment in the Republican conference to do $350 billion for states that the other states subsidize,” Crapo told reporters.   

Crapo’s top priority for the Senate tax bill is extending a bevy of temporary business tax breaks in the House bill that would expire after 2029, including enhanced interest expensing and deductions on research, development and equipment. Crapo is looking to trim other aspects of the House bill in order to offset the added cost of making those breaks permanent. 

He said that a decision had not yet been made on whether to lower the SALT cap or to what level. Under current law, individuals and couples can deduct $10,000 in state and local taxes if they itemize on their tax returns. 

Johnson said that the higher cap is crucial for the House to be able to pass the final version of the tax bill when it is sent back from the Senate later in the summer. He said he has made that clear to the Senate GOP.

“I told my friends I am crossing the Grand Canyon on a piece of dental floss,” he said.

The Washington Post first reported Trump’s openness to a smaller cap. 

“The White House is working closely with leaders in Congress to ensure that this landmark legislation gets over the finish line,” said spokesperson Kush Desai.

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