CXtec agrees to $2M partial settlement of federal suit for unlawful sale of cabling, counterfeit GBICs to govt

Partial settlement of lawsuit brought under the qui tam provisions of the False Claims Act relates solely to CXtec's sale of cables and certain GBICs.

The U.S. Department of Justice (DoJ) has entered into a settlement with Cablexpress Corp., which does business under the name CXtec (Syracuse, NY). Under the terms of the settlement, CXtec has agreed to pay $2 million to settle certain claims that it violated the Trade Agreements Act (TAA) and sold counterfeit cabling products to the government.

The settlement partially resolves a lawsuit filed by the Washington, D.C. law firm Tycko & Zavareei LLP and the Syracuse, NY law firm Satter & Andrews, LLP, on behalf of Timothy Kuney, a former high-ranking employee of CXtec. According to a press release issued by the D.C. plaintiff law firm, the lawsuit was brought under the qui tam provisions of the False Claims Act. Under that law, a private citizen with knowledge of fraud being committed on a government agency or government program may blow the whistle by bringing a lawsuit on behalf of the government. Successful qui tam whistleblowers can receive substantial awards. In this case, Mr. Kuney will receive an award of $380,000 as a result of DOJ's settlement with CXtec. CXtec is in the business of selling new and refurbished networking equipment, voice communications equipment, cabling, and related accessories, to both private companies and government agencies. In his complaint, which was filed in 2008, Mr. Kuney alleges that CXtec engaged in two different types of unlawful conduct.

First, the complaint alleges that CXtec sold products to federal agencies that were manufactured in China, Taiwan, Indonesia, Malaysia or Thailand, even though the sale to the government of products manufactured in those countries was prohibited by the TAA, and even though CXtec's contract with the government specifically required that all products be TAA-compliant. Second, the complaint alleges that CXtec sold counterfeit Gigabit interface converters (GBICs) to the federal government, and that CXtec represented to the government that the GBICs were manufactured by various well-known corporations, including Cisco, Nortel Networks, and Extreme Networks. According to the complaint, CXtec knew that it was selling counterfeit GBICs to the federal government, and had a sophisticated operation in place for sorting, testing and repackaging the GBICs to avoid detection of the counterfeit nature of the products.

The $2 million settlement announced by DOJ resolves some, but not all, of the claims alleged in the complaint. The settlement relates solely to CXtec's sale of cables and certain GBICs. Because the settlement is limited in scope, and does not fully resolve the case, the lawsuit will continue to move forward with respect to allegations that CXtec sold other products to the government in violation of the TAA.

"We are gratified that the government's attorneys and investigators aggressively pursued our client's allegations with respect to the unlawful sale of cables and counterfeit GBICs in violation of the False Claims Act, and we intend to continue our investigation and litigation of the remaining qui tam claims in the case," commented Jonathan Tycko, one of Mr. Kuney's attorneys. The case is titled United States ex rel. Kuney v. Cablexpress Corp., Case No. 08-cv-1239, and is pending in the U.S. District Court for the Northern District of New York.

Regarding the settlement agreement, CXtec released the following statement:

"DOJ asserted that CXtec had supplied customers with networking cables and GBIC transceivers that had been manufactured in China in contravention of the terms of the GSA Schedule contract. The Government notified CXtec regarding the GBIC’s soon after CXtec had been informed that its supplier was under investigation by the Federal Government.

CXtec believes that it complied with its obligations under its GSA Schedule contract and that customers were in no way harmed by the goods CXtec provided them. Nevertheless, CXtec decided to settle this matter to avoid the time and expense that litigation entails. Also, to strengthen its management, CXtec created a new compliance officer position with responsibility to monitor the company’s compliance with applicable government regulations and contract requirements. In addition, in 2008, in order to allow employees to report any non-compliance or ethics issues anonymously, CXtec established an 800 number that directs calls to an independent third party who reports to the CXtec Board of Advisors. The settlement will not affect CXtec’s employment levels or future operations, and CXtec will continue as a supplier to the Federal Government."

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