CXtec Agrees To $2 Million Partial Settlement Of Qui Tam Whistleblower Case

April 16, 2012 – The U.S. Department of Justice (DOJ) has entered into a settlement with Cablexpress Corp., which does business under the name CXtec.  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 goods 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.  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.  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,” said Jonathan Tycko, one of Mr. Kuney’s attorneys.

CXtec is headquartered in Syracuse, New York.  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.

For more information about this case, please contact us.

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