FalconStor to pay $5.8M to settle 2 federal cases

FalconStor to pay $5.8M to settle cases with SEC, US Attorney's Office over improper payments

Associated Press

MELVILLE, N.Y. (AP) -- Data storage company FalconStor Software Inc. said Wednesday that it will pay federal authorities $5.8 million in penalties to settle cases involving improper payments it made to a customer.

The company announced in 2010 that its president, CEO and Chairman, ReiJane Huai, would resign after he disclosed that it made improper payments to a customer in connection licensing software.

After the disclosure, FalconStor worked with investigators for the Securities and Exchange Commission and the U.S. Attorney's Office for the Eastern District of New York and conducted an internal investigation.

The U.S. Attorney's Office agreed not to prosecute its criminal case against the company if it satisfies the terms of the 18-month agreement, which include a payment of $2.9 million. FalconStor also will pay the SEC a $2.9 million civil fine. The company said it has reserved the money to cover the settlements.

"We are pleased to resolve these investigations," CEO and President Jim McNiel said in a statement. "The acts which resulted in these settlements are contrary to our core values, our policies and our expectations for ethical behavior. We have further strengthened the compliance culture within the company by making improvements and enhancements to our compliance program."

For its most recent fiscal quarter, which ended March 31, FalconStor reported a loss of $2.4 million on revenue of $19.4 million. That was better than the loss of $6 million on revenue of $19 million it reported for the same period a year earlier.

Shares of FalconStor, based in Melville, N.Y., rose 9 cents to close at $2.72 and fell 8 cents in after-hours trading.

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