A former EMC executive who now works for Irish firm Eurologic Systems met US Securities and Exchange Commission officials last month to discuss allegations that EMC had improperly booked revenue with customers.
The meeting with the Securities and Exchange Commission comes amid a bitter legal battle between Mr Kenneth Todd Gresham, a former EMC senior vice-president, and the world's biggest data storage firm over his employment as a consultant by Eurologic.
EMC, which was founded by the US ambassador to Ireland, Mr Richard Egan, filed a lawsuit against Mr Gresham in May, seeking to stop him from working at the US operations of Eurologic, a much smaller private data-storage firm based in Dublin.
EMC accuses him of breaking his key employee agreement and stealing company secrets. Mr Gresham denies those allegations and told EMC lawyers during a deposition in May that EMC improperly booked revenue with long-time customers such as Unisys Corpation.
EMC denied the allegations yesterday. "There's absolutely no merit to these allegations," EMC spokesman Mr Mark Fredrickson said. When asked about the SEC inquiry, Mr Fredrickson would not confirm or deny such an investigation. Mr Fredrickson said EMC had never been the subject of an SEC investigation over its accounting practices.
An SEC spokesman declined to comment yesterday.
While details of Mr Gresham's meeting with the Securities and Exchange Commission are unknown, his claims disclosed in court papers are potentially explosive in the wake of the collapse and scandal surrounding energy trader Enron. Investors are dumping shares in companies whose accounting practices are being questioned.
EMC shares closed up 67 US cents at $15.04 on the New York Stock Exchange last night.
The Securities and Exchange Commission contacted Mr Gresham after his revenue recognition claims surfaced in media reports about the court battle. He left EMC before EMC last year reported a third-quarter net loss of nearly $1 billion (€1.15 billion) on plunging sales of data-storage systems. The loss included writing off $320 million in excess inventory. In 2000 and the first quarter of 2001, Mr Gresham said Unisys senior management complained to him about EMC's refusal to grant credit to Unisys for unsold EMC inventory, according to his deposition.
Unisys, a long-time reseller of EMC products, took the shipments on the condition that they could be resold to another customer, Mr Gresham said.
"... They were sitting on inventory that was not moving, would not go anywhere, and they only took the inventory because local sales at EMC had convinced them that there was a deal or a potential deal that would come down in the very near term," Mr Gresham said in his May 24th deposition.
EMC recorded the shipments to Unisys as revenue even though the products stayed in a warehouse for as long as a year after customer deals fell apart, charged Mr Gresham, who worked on EMC's top reseller accounts.
Unisys was not immediately available for comment.
Some EMC customers demanded credits for the unsold products, but Mr Gresham said he was told by his superiors that those decisions would be made by EMC's sales force.
"Upon the quarter ending and the deal falling apart, Unisys would then say: 'We took this product in good faith and we've been told that the deal is gone, and we would like our credits, please," Mr Gresham explained in his deposition.
Mr Gresham in his deposition claims EMC tolerated outrageous behaviour by some members of its sales force. He alleges that a sales manager in New York intimidated him by swinging a baseball bat at him in 1999.
Mr Gresham said he reported the incident to his superiors, but the sales manager, who had left the company after the alleged incident, was rehired at EMC, according to the deposition.
A spokesman for Eurologic said last night Mr Gresham was still employed as a consultant to Eurologic although most of his work was undertaken on a private capacity for Mr John Maybury, chief executive of Eurologic. - (Additional reporting Reuters)
