Business

IBM Triangle execs named in $100M racketeering suit

Posted June 22, 2010 6:35 a.m. EDT
Updated June 22, 2010 2:08 p.m. EDT

— 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.