SEC probing Apple over $1 million purchasing scandal
The U.S. Securities Exchange Commission has implicated itself in a report detailing a series of internal purchasing violations of Apple products that cost the SEC as much as $1 million.
Reuters uncovered the report, which was filed by SEC Inspector General David Kotz in December 2010. Kotz, who serves as the agency's 'internal watchdog,' discovered "numerous problems" with both the purchased equipment and the procurement process, the report noted.
According to the probe, an Apple salesman convinced the SEC in 2008 that the storage firm Cloverleaf Communications could provide a more affordable solution to the agency's backup needs. The SEC then violated federal procedure by securing a no-bid contract with Cloverleaf. Cloverleaf was acquired by Dot Hill Systems in 2010.
After looking into the alternative options, Kotz found Cloverleaf's services "to be more expensive than other, better-known and less risky alternatives."
Kotz also discovered that the SEC had "improperly shared budget information" with Apple and proceeded with purchases before securing the proper approval and conducting reviews, according to the report.
While implementing the new technology, the SEC experienced numerous problems. Kotz noted that bugs in the installation were not worked out and the project "quickly went downhill from there." According to Kotz, one SEC supervisor even attempted to cover up the issue. After staff informed a superior of the problems, the supervisor reportedly told them "this information doesn't leave the room."
SEC spokesman John Nester said in statement that the agency agrees with Kotz's findings and is "taking steps to improve our policies and controls over purchases of information technology solutions, including pre-purchase review by management's technology and business oversight committees."
News of the budgetary improprieties comes as the SEC has requested a $222 million, or 16 percent, increase to its budget for the 2012 fiscal year, which begins Oct. 1. According to Reuters, Kotz's report could "provide ammunition" to Republican lawmakers seeking to block funding to the regulator.
Though Apple is no stranger to SEC investigations, the recent probe is unusual in that it involves the SEC investigating itself. In 2007, the SEC settled with Apple's former chief financial officer in an investigation alleging several of the company's executives had backdated stock options. The agency has also looked into suspected insider trading of Apple stock in years past.
Reuters uncovered the report, which was filed by SEC Inspector General David Kotz in December 2010. Kotz, who serves as the agency's 'internal watchdog,' discovered "numerous problems" with both the purchased equipment and the procurement process, the report noted.
According to the probe, an Apple salesman convinced the SEC in 2008 that the storage firm Cloverleaf Communications could provide a more affordable solution to the agency's backup needs. The SEC then violated federal procedure by securing a no-bid contract with Cloverleaf. Cloverleaf was acquired by Dot Hill Systems in 2010.
After looking into the alternative options, Kotz found Cloverleaf's services "to be more expensive than other, better-known and less risky alternatives."
Kotz also discovered that the SEC had "improperly shared budget information" with Apple and proceeded with purchases before securing the proper approval and conducting reviews, according to the report.
While implementing the new technology, the SEC experienced numerous problems. Kotz noted that bugs in the installation were not worked out and the project "quickly went downhill from there." According to Kotz, one SEC supervisor even attempted to cover up the issue. After staff informed a superior of the problems, the supervisor reportedly told them "this information doesn't leave the room."
SEC spokesman John Nester said in statement that the agency agrees with Kotz's findings and is "taking steps to improve our policies and controls over purchases of information technology solutions, including pre-purchase review by management's technology and business oversight committees."
News of the budgetary improprieties comes as the SEC has requested a $222 million, or 16 percent, increase to its budget for the 2012 fiscal year, which begins Oct. 1. According to Reuters, Kotz's report could "provide ammunition" to Republican lawmakers seeking to block funding to the regulator.
Though Apple is no stranger to SEC investigations, the recent probe is unusual in that it involves the SEC investigating itself. In 2007, the SEC settled with Apple's former chief financial officer in an investigation alleging several of the company's executives had backdated stock options. The agency has also looked into suspected insider trading of Apple stock in years past.
Comments
If the Apple salesman had recommended that they paint the walls pink and the SEC then hired a contractor to do so and it turned out there were bad chemicals in the paint that made some people ill, would they investigate Apple over that?
All this assumes that the salesperson had no financial interest in the deal.
What about the ACC? The Big Ten? The Ivy League? The Pac-10? This is an outrage!
The first sentence is misleading. This is not Apple's problem at all.
Just the SEC?!?
What about the ACC? The Big Ten? The Ivy League? The Pac-10? This is an outrage!
Pac-12
... Apple is no stranger to SEC investigations...
Ask yourself why every single tech blog is reporting this story as "Apple being investigated by the SEC" when in fact there is no evidence that they are, and no evidence that they did anything untoward at all?
If you read the detail, you find out that the SEC is actually investigating itself, but the headline is "SEC probing Apple."
This is wildly irresponsible "journalism."
If you read the linked Reuters article it does say that Apple was involved. It says that Apple sold some equipment to the SEC (doesn't say what but maybe iPhones or iPads?) and possibly the SEC was looking for equipment to handle email and data storage. The Apple salesman probably suggested the other company as Apple is no longer in the server business. Apparently the SEC employee signed contracts for this equipment and services without putting out a bid.
You disprove your own argument here.
Apple was of course "involved" in that they sold them hardware. That does not equate to Apple having anything to do with the "wrongdoing" part.
If you read the detail on the original report, all it indicates is that the SEC made a stupid purchase without checking into it first and violated a score of their own purchasing rules. What has that got to do with Apple?
Are we going to take Apple to court for selling products that someone doesn't like or find as useful as they thought they would? If it was your company, would you like the idea of this place and dozens of other tech blogs basically calling them guilty based on no evidence at all? If Apple wasn't doing so well financially right now, irresponsible stories like this could ruin their business.
/me longs for the days when journalists still roamed the plains.
This article has holes in it, which is why it's confusing!
"Mess with us will you?... Hey did you know about this company that has products and services that could save you a lot of money?"
I assume that they are backing up Apple systems if an Apple sales person was involved. If you know anything about Apple servers, the big backup vendors don't have products that cater to the OS X platform. I could see it going like this: "There is only one product that will do everything you need. It is product x." Then the SEC IT said: "We don't need to bid this since there is only one company that does what we need to do." Then they ran in to integration issues or lost data and now there is finger pointing. This probably has nothing to do with competition because there isn't much in this space. There are only three main backup products for OS X and they each fill different niches. Basically there is ArchiWare PresSTORE, Atempo Time Navigator, and Bakbone Netvault. I've never heard of Cloverleaf, but they may have been the only product to do some specific thing they were looking for. All of these backup products are also fixed priced, so it does not make sense to bid these out anyway. Integration of this software is not fixed price, but it doesn't sound like that is what the article is referring to. Generally a certain number of hours is contracted to a service provider that then does the installation and training of technicians. All of the good service providers that are fully certified in these products generally bid at around the same fixed rate. If service didn't go out to bid for some reason (although it would be wrong for the SEC), it would have cost about the same. I think this is pretty typical in niche areas.
As far as not getting the proper approvals, that is a different story. What kind of approvals are necessary? Do they have a backup system approval department? Obviously they got the approvals for the funds. If they release funds for things that are not approved I think there are bigger problems at the SEC. There are always contracts that are written to deal with integration issues. This protects both the service provider and the client. If bugs were not resolved, generally the provider was not given important information by the client that affected integration (usually the client is exempt from those things in a contract) or the problem they were trying to solve changed by the time the project moved forward. Occasionally there are also waivers in the contract if the provider isn't comfortable with something. If the provider didn't honor their side of the contract they could be sued. This situation may have been caused by the supervisor or it may have been caused by general bureaucracy. Having been in some of these situations, I would say the latter is more likely.
It sounds like they are suggesting to cut the backup systems in the new budget to "save" money? Sounds like a typical idea coming from a politician. As long as it fails on the next guys watch right?
BTW: This was 2008. Way before the Xserve was discontinued.
Ask yourself why every single tech blog is reporting this story as "Apple being investigated by the SEC" when in fact there is no evidence that they are, and no evidence that they did anything untoward at all?
If you read the detail, you find out that the SEC is actually investigating itself, but the headline is "SEC probing Apple."
This is wildly irresponsible "journalism."
'Yellow Journalism" at its best.