VMware will pay the government $75.5 million to settle an overcharging lawsuit

VMware Pat GelsingerVMwareVMware CEO Pat Gelsinger

VMware and one of its reseller partners will pay $US75.5 million settlement to the General Services Administration (GSA) to settle a lawsuit alleging that the virtualization software company defrauded the federal government.

VMware in a statement says it denies the charges of fraud, but settled anyway to avoid protracted litigation.

The GSA is a federal agency that handles logistics and office space for other parts of the government. VMware is one of the largest software companies in the world, with more than $US6 billion in revenue last year.

The suit was originally filed in 2010, and remained sealed by the Department of Justice until the settlement was finalised earlier today. Cotchett, Pitre, & McCarthy, the prosecuting law firm in this case, calls it “one of the five largest recoveries against a technology company in the history of the False Claims Act” in a press release.

The suit was filed by a GSA sales executive who accused VMware of “inaccurate pricing, inaccurate disclosures, and incomplete information about sales of VMware products to non-governmental customers,” Cotchett, Pitre & McCarthy says. “In short, the lawsuit alleged the government paid more than private companies for the same services.”

In the original case filing, the GSA alleges that the discount offered by VMware (and Carahsoft, its government-approved reseller, also named in the suit) was 12 per cent, well below the deal it offers to commercial customers of a similar size. In fact, the suit alleged, it was lower than the deal that VMware offers customers in foreign governments.

A VMware spokesperson gave the following statement:

VMware cooperated fully with the DOJ and GSA in connection with their multi-year investigation regarding VMware’s government sales practices covering the period between 2007 and 2013. VMware believes that its commercial sales practice disclosures to the GSA were accurate and denies that it violated the False Claims Act. The Company nevertheless elected to settle this lawsuit rather than engage in protracted litigation with one of its important customers — the federal government.

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