Wednesday, July 29, 2015

Devon IT accuses IBM of 'fraud' in $100M+ lawsuit - Link

Devon had to lay off 60 workers and default on its loans after IBM cancelled work on three joint projects.

Devon IT accuses IBM of 'fraud' in $100M+ lawsuit - Link

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Devon IT, the King of Prussia computer company founded by Devon Health Preferred Provider Organization founder Dr. John Bennett of Villanova, last week filed a civil lawsuit against IBM Corp. and four senior IBM executives in federal court, alleging fraud, racketeering and conspiracy in IBM's handling of $12 million invested by Devon IT in a series of IBM projects since the companies signed a "collaboration agreement" in 2005. Read Devon's complaint here (pdf).

Devon says the money was supposed to develop the IBM Blade server-hosted computer workstation, the IBM iDataPlex computer storage rack, and the IBM ClientPlex data center-based personal computer. As projected by IBM officials, sales of these products would eventually have topped $900 million, according to the lawsuit. (The stations were to be built by FoxConn, the Taiwan-owned Chinese manufacturer where a series of suicides by young workers under pressure were reported earlier this year, leading to a promise of higher wages by the firm's managers.)

Instead, Devon alleges IBM and its employees "used a substantial portion of Devon's investment money to inflate the earnings" of IBM's Systems and Technology Group, and kept taking Devon's money even after cancelling work on the systems. Devon had borrowed part of the money from an Irish firm, Claret Capital Inc. Devon has defaulted on the loans.

As a result, Devon says it has had to lay off 60 employees who had been hired or assigned to sell the systems. Devon "put in $12 million direct" to IBM, "and they spent $20 million out of pocket to build out" sales and support for the products that never fully materialized, among other losses, Devon IT's lawyer, Maurice R. Mitts of Mitts Milavec LLC, Philadelphia, told me. IBM had no immediate comment on the suit. IBM's lawyers, Glen Nager and Michael Shoemaker of Jones Day in Washington DC, did not immediately return calls.

The company and other Bennett enterprises now employ around 120 at the group's campus at 1100 First Ave., King of Prussia, and other sites.

Among those named in the suit is Rodney C. Adkins, an IBM Systems and Technology executive who has headed the group since last year, and three managers who report to him. (His predecessor, Robert Moffatt, left the company last year before pleading guilty to federal criminal charges of leaking inside information about IBM deals to hedge fund managers.)

The lawsuit, under the federal Racketeer Influenced and Corrupt Organizations Act, seeks treble damages totalling over $100 million. Case is 10-cv-02899 in the U.S. District Court for the Eastern District of Pennsylvania.

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PhillyDeals posts drafts, transcripts and updates of Joseph N. DiStefano's columns and stories about Philly-area business, which he's been writing since 1989.

DiStefano studied economics, history and a little engineering at Penn and taught writing at St. Joseph's. He has written thousands of columns and articles for the Inquirer, Bloomberg and other media, wrote the book Comcasted, and raised six children with his wife, who is a saint.

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Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

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