SAP (SAP.US) stock hits new high, but hidden concerns behind: suspected manipulation of military procurement prices with Carahsoft.

The US Department of Justice is investigating SAP (SAP.US) and its distributor Carahsoft Technology Corp. for potentially illegally colluding to manipulate sales prices to the US military and other government departments over the past decade. This civil investigation has been ongoing since 2022. This poses a legal risk for SAP, one of Germany's most valuable companies and a top technology supplier for the US government. Additionally, Carahsoft's offices were raided by FBI agents and military investigators, further exposing the company's scandals. According to federal court records filed in Baltimore, Justice Department lawyers have been investigating since 2022 whether SAP and Carahsoft engaged in illegal collusion to manipulate sales prices to the US government. SAP is a globally renowned business software manufacturer, with products including accounting, human resources, and supply chain management software. This investigation poses significant legal risks for SAP, especially as its stock price is soaring. Carahsoft, a strong software supplier, had its offices in Virginia raided by FBI agents and military investigators on Tuesday. While Carahsoft spokesperson Mary Lange described the raid as an investigation into "companies Carahsoft had business dealings with in the past," it is unclear if this raid is related to the investigation into SAP. Lange and other Carahsoft representatives declined to answer detailed questions. SAP spokesperson Monica Schuler also declined to comment. Following this news, SAP fell by 3.34% to $223 in pre-market trading. Nonetheless, the stock has risen by 42% so far this year. Civil Investigation A long-running civil investigation is delving into possible market manipulation involving SAP technology purchased by the US government since 2014, valued at over $2 billion. Court records indicate prosecutors are investigating SAP and its distributors, including a division of the large management and technology consultancy firm Accenture Plc Class A, for potential market manipulation. While many investigations end without formal charges of wrongdoing, this investigation reveals the Justice Department's strict stance against bid rigging, a deceptive practice involving collusion among competitors to secure bids. Details of the investigation have emerged in court battles between prosecutors and Carahsoft, involving the closely-held company's handling of legal filings. While many records related to the litigation have been sealed or heavily redacted, the unredacted versions of documents describing the underlying investigation have been made public. Accenture Plc Class A spokesperson Peter Soh stated that its subsidiary, Accenture Plc Class A Federal Services LLC, "is responding to administrative subpoenas and cooperating with the Justice Department." The Justice Department has not commented on the matter yet. The investigation is suspected of violating the False Claims Act US prosecutors are investigating potential improper relations between the German software giant SAP and its distributor Carahsoft, involving potential violations of the False Claims Act. By June 2022, prosecutors had requested Carahsoft to provide documents and information related to potential violations. According to unredacted documents obtained by Bloomberg News, prosecutors are investigating whether SAP, Carahsoft, and other companies have made false statements to the Department of Defense by coordinating bids and prices for SAP software, cloud storage, hardware, and related services. The documents require Carahsoft to provide a significant amount of information relating to the sale of SAP software, including emails, text messages, contracts, employee lists, and other data. Over a year later, federal prosecutors filed a lawsuit against Carahsoft in an attempt to enforce the requests, accusing the company of "stubbornly refusing to provide this basic information." Much of the lawsuit's proceedings have been sealed until last Friday, when the case was assigned to a new magistrate judge for pretrial discovery, or evidence disclosure. Carahsoft's lawyer Richard Conway declined to comment on the case, the civil investigation, or the FBI raid of his client's offices. In a telephone interview, he stated, "I will not discuss such matters in the media." Carahsoft spokesperson Mary Lange mentioned that Carahsoft is "fully cooperating" with the investigation and "conducting business as usual" in response to questions about the FBI raid. It is not clear when prosecutors started investigating the relationship between SAP and Carahsoft, but the progress of the investigation indicates that the Justice Department is actively investigating potential misconduct. Carahsoft Business Faces Significant Impact Since its founding in 2004, Carahsoft has become a leading enterprise in the government technology procurement market. Last year, the company ranked 45th on Forbes' list of largest private companies in the US, with an expected revenue of $11 billion and over 2400 employees. Among all federal IT product suppliers, Carahsoft ranks second in the value of contracts signed directly with the government, totaling $3.5 billion since the beginning of the 2020 fiscal year, second only to Dell Technologies, Inc. Class C. SAP technology is a key component of Carahsoft's business. Prosecutors noted in court documents that Carahsoft had secured over 600 federal contracts for SAP technology worth more than $990 million, facilitating additional sales of up to $1 billion. It is unclear how much of these sales may have been affected by bid manipulation. According to the False Claims Act, the government can recover up to three times the damages plus penalties. Both SAP and Carahsoft have had conflicts with the Justice Department.Over a period of 5 years, Carahsoft and VMware LLC have agreed to pay $75.5 million to settle allegations in a False Claims Act lawsuit accusing them of overcharging the government for VMware software and services from 2007 to 2013.This investigation may have a significant impact on Carahsoft's business and also bring legal risks to SAP. As the investigation deepens, both companies may face more legal challenges and potential financial losses. SAP faces multiple challenges In January this year, SAP agreed to pay over $220 million to resolve a US authorities' investigation into its overseas bribery practices. The company was accused of bribing government officials in South Africa and Indonesia, and subsequently signed a three-year deferred prosecution agreement with the US Department of Justice. Recently, German prosecutors launched a criminal investigation against SAP's Chief Technology Officer who resigned due to misconduct. The exposure of this new investigation comes as SAP's stock price hit an all-time high during the company's restructuring period. This year, SAP's CEO Christian Klein implemented measures to cut staff and expenses, while other executives have also resigned or announced their intention to do so in recent months. Despite facing legal and internal challenges, SAP's stock price does not seem to be significantly affected.