IBM Triangle execs named in $100M racketeering suit

Posted June 22, 2010

— A Pennsylvania-based information technology partner of IBM (NYSE: IBM) is suing the technology giant for some $100 million, alleging a Ponzi scheme and racketeering.

In a lawsuit filed in federal court in Pennsylvania on June 16, Devon IT accused IBM and several senior executives by name of misusing $12 million that Devon invested in two IBM projects.

Two of the executives named in the suit are based at IBM’s RTP campus, which employs some 10,000 Big Blue workers.

IBM disputed the allegations against the company and its Systems and Technology Group, or STG, in a strongly worded statement and said it would fight the suit “vigorously.”

The defendants "are responsible for orchestrating a wide-spread Ponzi scheme, in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO) over a period of nearly five years," Devon said in the 58-page suit.

“As part of their scheme, the RICO Defendants intentionally misrepresented the market potential of the products they touted and continued to demand funding from Devon – an admittedly smaller company with less resources than IBM – even after the RICO Defendants secretly canceled at least one of the subject development projects,” the company alleges in the suit.

Devon, which is based in King of Prussia, Pa., alleged that IBM used the $12 million “to inflate the earnings of STG, to fund other projects with other business partners, or for some purpose other than for the benefit of the projects involving Devon.”

The companies were working together on “blade” servers, which house multiple hard drives, in a project dating back to 2005, according to Devon. Devon was to receive royalties in exchange for its investment of $4 million. The companies also worked together on another project starting in 2007 involving a “data center remote PC.” Devon said it invested $12 million in that project.

IBM officials reacted strongly to Devon’s claims.

“Devon’s overheated claims are without merit,” said Tim Breuer, director of external relations for IBM Systems and Technology Group.

“The complaint, which attempts to dress up its lack of supporting evidence into charges based on ‘information and beliefs,’ is filled with outright falsehoods, half-truths and exaggeration.”

According to Breuer, Devon has been threatening IBM for months.

“There simply are no facts to support the improper and false conclusions that Devon draws,” he said.

“IBM has refused to be intimidated by months of Devon’s threats into paying money that Devon is not properly due or owed.

"IBM will defend the suit vigorously and promptly seek to dismiss the claims," he wrote in an e-mail Tuesday.

Four execs included in lawsuit

The suit cites four IBM executives by name. Two of them are based in the Triangle, IBM confirmed.

The four are:

  • Thomas Bradicich, vice president of Systems Technology at IBM, who lives in Apex.
  • James Gargan, vice president of Demand Programs, is listed as a Research Triangle Park-based IBM employee.
  • Bernard Meyerson, vice president of Innovation, who lives in Yorktown Heights, N.Y.
  • Rodney Adkins, IBM’s recently named head of the Systems and Technology Group, who lives in Greenwich, Conn. Adkins replaced Robert Moffatt, who left IBM after being implicated in an insider trading scandal.

The alleged roles played by the IBM executives is detailed at length in the suit.

Devon alleges that the scheme took place in 2008 and 2009 while Moffatt was running STG.

The Pennsylvania firm says it suffered losses of “more than $12 million” in “direct investment” and $20 million in “related development expenses.”

Devon raised its investment money from Claret Capital Blade Limited. Claret sued Devon in 2009.

The company wants “treble damages” as well as interest, legal costs and other relief from the court.

According to the Philadelphia Inquirer, Devon has defaulted on the loans from Claret.


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  • TheAdmiral Jun 22, 2010

    Interesting. And I just can't find anywhere where I can disagree with the lawsuit.

    IBM keeps contractors on the roles for 15 years or more, even though they know they can only do it for 5, and don't pay them appropriately.

    If a contractor is with them for any period of time, they are supposed to hire them direct. But they don't.

  • itsnotmeiswear Jun 22, 2010

    Anything that causes IBM to suffer some of the pain that they have inflicted on others is fine with me. I understand they are in the business to make money, but a lot of their decisions are very short term fixes motivated by incorrect incentive systems.

  • davido Jun 22, 2010

    Mhsvoice.. let me help: "Blade servers are very shiny things. They are very fast. They contain no actual blades, but could be dangerous if thrown at you nonetheless."

  • Squirreling Dervish Jun 22, 2010

    They will lay off 6000 US-based contractors, and bring in cheaper priced H1-B and L-1 Visa contractors from China and India to make up the difference. IBM India will be hopping and bring in more than the 100 workers a month they were bringing in before........

  • Pseudonym Jun 22, 2010


    What did you expect? Reporters majored in journalism, not engineering. Many of them wouldn't find their way around a computer without desktop icons and shortcuts.

    In an unrelated note, Rick Smith: It's King OF Prussia, PA, not King Prussia.

  • not_any_more Jun 22, 2010

    Sorry Devon...not Devin....

  • not_any_more Jun 22, 2010

    I tend to believe Devin here. I knew of at least one project in which IBM upper management gloated that they funded a project that was paid with money meant for another project. I think it probably happened more often than one would think...gee who else does that with our tax dollars......

  • dougdeep Jun 22, 2010

    @mhsvoice The companies were collaborating on the BladeCenter HC10. It's not a 'server' but a desktop blade.

  • smegma Jun 22, 2010

    ibm has plenty of money to spare. they'll just lay off 6000 contractors this quarter to pay for it

  • dougdeep Jun 22, 2010

    Tom Bradicich not Bradwich