Sunnyvale Network Security Company Agrees To Court Settlement

SUNNYVALE, CA -- A Sunnyvale network security company agreed to a settlement valued at $545,000 to resolve false claims allegations relating to federal trade regulations, U.S. Attorney David L. Anderson announced Friday.

Fortinet acknowledged that between January of 2009 and fall of 2016, an employee responsible for managing its supply chain arranged to have labels on certain products altered to make the products appear to be compliant with federal trade rules. A portion of the products were resold through distributors and subsequent resellers to U.S. government end users.

“Today’s announcement illustrates the continuing commitment of the U.S. Attorney’s Office and our law enforcement partners to identify and prosecute fraudulent schemes relating to the sale of goods to the United States,” Anderson said.

“Contractors that supply the U.S. Government with Chinese-made technology will be pursued and held accountable when violating the Trade Agreement Act,” said DCIS Special Agent in Charge Denny. “The DCIS and its law enforcement partners are committed to combatting procurement fraud and cyber risk within U.S. Department of Defense programs.”

“This settlement displays the steadfast commitment of our agents and our federal law enforcement partners,” said USACIDC Director Robey. “This settlement is a clear signal to the supply community doing business with the Department of the Army—fraud will not be tolerated in any way, shape or form.”

The U.S. Trade Agreement Act generally prohibits certain government contractors from purchasing products that are not entirely from, or “substantially transformed” in, the United States or certain designated countries.

Fortinet sells networking devices, some of which may be sold through distributors and subsequent resellers to U.S. government end users.

To settle the allegations, Fortinet has agreed to pay $400,000 and to provide the United States Marine Corps with additional equipment valued at $145,000.

“We hold ourselves to the highest ethical standards of trust and integrity. This was an isolated incident that involved events from more than two years ago in which a rogue former employee acted against our policies. When we were made aware of the incident, we took immediate action, including thoroughly investigating the matter, terminating the employee and implementing additional safeguards to prevent an issue like this from happening again. The nominal settlement amount of $545,000 reflects in part our cooperation to promptly and thoroughly address this matter,” Fortinet responded in a prepared statement.

The lawsuit was filed by Yuxin “Jay” Fang under the qui tam provisions of the False Claims Act. Under the act, private citizens can bring suit on or behalf of the government for false claims and share in any recovery. The act also permits the United States to intervene in and take over a whistleblower suit, as was done here.

This matter was investigated by the U.S. Attorney’s Office of the Northern District of California, along with the DCIS, GSA-OIG, Air Force Office of Special Investigations, USACIDC, HSI-OIG, the Department of the Navy, and the Coast Guard Investigative Service.

Fortinet cooperated in the government’s investigation, including by sharing the results of its internal investigation in this matter. The settlement reflects Fortinet’s cooperation with the government in this and other matters.