EMC faces shareholder lawsuit amid federal claims
High-tech giant EMC Corp., already facing allegations that it gouged the government on several contracts, now must contend with a lawsuit from shareholders.
Law firms in Massachusetts and Pennsylvania recently filed suit against the Hopkinton-based data storage company’s directors and key executives in Middlesex Superior Court.
The suit, filed on behalf of shareholder Margaret Boyce of Washington state, contends wrongdoing by EMC officials could cause the company to be hit with stiff legal fees and penalties, hurting shareholders. Boyce is asking EMC officials to compensate the company for any damages and to reimburse Boyce for the costs of bringing the suit, including attorney fees.
The shareholder’s action comes nine months after the US Justice Department claimed that EMC systematically overcharged the government for goods and services in a series of purchases. A Justice Department suit accused EMC of secretly paying kickbacks to consultants and other contractors that recommended the government buy the company’s products. And it said EMC made false statements to the General Services Administration to obtain higher prices.
EMC has previously denied the government’s allegations - saying it did not violate any laws or make improper payments to its business partners - but has been in talks with the government to resolve the matter. The company warned in its third-quarter quarter filing with the Securities and Exchange Commission that government action “could result in suspension or debarment from sales to the federal government.’’ The Justice Department could not be reached yesterday for an update on the case.
EMC spokesman Patrick Cooley said the company plans to vigorously fight the shareholder suit and the government allegations, but declined to comment further.
The quarterly filing also hinted that another shareholder lawsuit could follow. EMC said it last spring received a second letter on behalf of shareholders - the first step in filing this type of shareholder suit - in addition to the one on behalf of Boyce.
Eric Zagar, a Pennsylvania lawyer representing Boyce, said the shareholder suit is necessary because the damage to the company could be significant. He said the government has cited “reams and reams of transactions’’ where it was overcharged and hopes to be compensated, which could potentially deplete corporate coffers.
The shareholder action is known as a derivative suit, meaning it is being brought by shareholders on behalf of a corporation against a third party, such as a director or executive.
Zagar said most of the alleged wrongdoing occurred in the late 1990s and the early part of this decade. Regardless, he said, the law firm decided to sue the current directors, including some who have been on the board only for two years, rather than pursue former board members.
“That is a judgment call,’’ said Zagar, who works for Barroway Topaz Kessler Meltzer & Check LLP of Pennsylvania, the lead law firm in the case. Boston law firm Gilman and Pastor LLP is also involved.
Todd Wallack can be reached at twallack@globe.com. 
