SEC v. Oracle Corporation, No. 3:12-cv-04310 (N.D. Cal. 2012)
The SEC has not alleged that any payment constituted a bribe; rather, this case is built upon the potential of unrecorded funds to be used for bribery or embezzlement purposes.
Computer & Information Technologies-Software
2005; 2006; 2007
Oracle Corporation (“Oracle”) is a publicly-traded computer technology corporation registered in Delaware and headquartered in California. Oracle develops enterprise software and provides computer hardware products and services to its customers.
The SEC alleges that employees at Oracle’s wholly-owned subsidiary, Oracle India Private Limited (“Oracle India”), secreted proceeds from its sales to the Indian government for potential future use as bribe money or for embezzlement.
According to the SEC complaint, Oracle India sold Oracle software licenses and services to the Indian government through local distributors. Oracle India negotiated the base price and services to be provided with the Indian government, while its local distributors placed the actual end-user order with the Indian government at a marked up end-user price. The Indian government paid the local distributors the end-user price, and distributors were responsible for paying Oracle India the contract price less the end-user mark up.
The SEC alleges that on fourteen different occasions relating to eight different contracts, certain Oracle India employees created extra margins between the end user and distributor price and directed the distributors to hold the extra margin in side funds. Thus, while the Indian government customers paid the distributors at least $6.7 million on these sales, Oracle received only $4.5 million in revenue. The remaining $2.2 million “side fund” was allegedly a source of money from which Oracle India intended to make unauthorized payments to third parties. At the direction of the Oracle India employees, the distributors then made payments out of the withheld funds to third parties, purportedly for marketing and development expenses. Some of the recipients of these payments were not on Oracle's approved local vendor list, and some third parties were mere storefronts that provided Oracle India no services.
The SEC further alleges that the Oracle India’s employees concealed the $2.2 million from Oracle, and therefore, that Oracle failed to properly report the $2.2 million as prepaid marketing expense, an asset item in its books and records.
Finally, the SEC alleges that Oracle lacked the proper controls to prevent its employees at Oracle India from creating and misusing the withheld funds. According the complaint, Oracle failed to audit the distributor's margin against the end user price to ensure excess margins were not being built into the pricing structure. According to the SEC, Oracle also failed to seek transparency in or audit third party payments made by distributors on Oracle India's behalf.
Books and records (Issuer), Internal controls (Issuer)
Civil penalty, Civil Settlement, Injunction/Cease and desist