The soured partner sale that landed a banking IT exec in jail

The soured partner sale that landed a banking IT exec in jail

CSC locked in legal battle with former ServiceMesh chief

As former Commonwealth Bank of Australia (CBA) IT executive, Keith Hunter, gets jail time for allegedly taking kickbacks from the former head of US-based enterprise cloud management company, ServiceMesh, the legal battle to lay the bribery scandal to rest continues.

As reported by Computerworld, Hunter, former CBA IT infrastructure and operations chief, was sentenced on 20 December in Sydney District Court on two counts – one of corruptly receiving a benefit as an agent of his employer, and another of dishonestly causing financial disadvantage.

Judge David Arnott sentenced Hunter to more than three years’ jail time, with a non-parole period of over two years.

Hunter was one of two CBA executives to be charged in March last year over the alleged bribery scheme, with the case of a former colleague still ongoing.

At the centre of the case is the allegation that the two CBA executives accepted financial kickbacks in 2013 and 2014 from Eric Pulier, the former head of ServiceMesh, in exchange for approving an IT contract for the partner slated to be worth more than $10 million.

The court heard that Hunter, whose take home pay in his capacity as a CBA executive came to some $1 million a year, was on track to receive about $US750,000 from the kickbacks.

Amid the kickbacks, Hunter allegedly pushed for CBA to purchase McAfee and Pivotal Cloud Foundry software and services through ServiceMesh, despite the bank previously rejecting such a deal over concerns it was too expensive.

Pulier allegedly used the Ace Foundation, a US-based non-profit organisation, to channel funds to Hunter and his CBA colleague.

While Hunter is also facing criminal charges in the US following an FBI investigation into the bribery scandal, Pulier – the former ServiceMesh CEO – is locked in a fierce legal battle with CSC over the circumstances surrounding the sale of his enterprise cloud management company to the US-based global IT services company.

CSC bought ServiceMesh in 2013 for more than $US260 million. The deal included $US93 million in cash, and an earnout payment of $US98 million.

“The earnout payment was based on certain revenue generated by ServiceMesh from January 1, 2013, through January 31, 2014,” said a legal filing by CSC lodged in late 2015 in relation to a US civil case against Pulier, who has been allegedly implicated in the scheme.

“A significant amount of that revenue came from contracts between ServiceMesh and Commonwealth Bank of Australia Ltd…In fact, but for that revenue, ServiceMesh equity holders – including Pulier – would have received no earnout payment at all.

“In 2014 – after receiving his $US9 million initial cash payment, $US13 million employee bonus, $US25 million earnout payment, and $US26 million worth of restricted stock units, and while employed by CSC – Pulier transferred more than $US2 million to the personal bank accounts of two senior information technology executives at CBA,” the filing stated.

According to the Los Angeles Business Journal, the acquisition deal included more than $US30 million for the former ServiceMesh executive allegedly behind the bribery scheme.

The CSC filing notes that the large payments breached the Equity Purchase Agreement, and violated “numerous” CSC rules and policies that CSC claims Pulier agreed to when he signed a Retention Agreement with CSC.

“Pulier’s wrongful conduct caused CSC to pay over $98 million in earnout payments that it otherwise would not have paid, and resulted in a significant criminal law enforcement investigation in Australia that has caused CSC to incur significant legal and investigative costs,” said the CSC filing.

CSC is now trying to reclaim the additional $98 million it paid in the acquisition, with the filing stating that CSC and ServiceMesh now seek to recover the “substantial damages” caused by what it alleges was Pulier’s “intentional misconduct, fraud, [and] fraud by omission”.

When CSC announced its acquisition of ServiceMesh in late October 2013, the company said it viewed the deal as a strategic move to enable CSC to continue its transformation into a next-generation IT company with increased cloud migration capabilities.

"With ServiceMesh, we will empower an ecosystem of enterprise software providers by lowering the friction for companies to execute a multi-vendor hybrid cloud strategy while maintaining central governance, policy, and administration,” CSC chief technology officer, Dan Hushon, said upon the announcement.

“Bringing ServiceMesh and CSC together creates a true leadership position in IT transformation,” said Pulier at the time.

Since CSC took legal action against Pulier, however, the former ServiceMesh chief has counter-sued, returning legal fire on 4 May this year, pushing for the Delaware Chancery Court to have CSC advance him legal fees related to the prior lawsuit.

According to a report by Law360, an attorney for Pulier argued that the former ServieMesh CEO was an officer of CSC during the period he was kept on as vice president after CSC’s acquisition of the company, meaning that he would be entitled to fee advancement under the company’s bylaws.

However, CSC attorney, Bryant Boren Jr, rejected the claim, countering that Pulier was never an officer of the company, as such a position can only be bestowed by an official vote of the CSC board of directors, under the company’s bylaws.

“If we did not have a letter he [Pulier] signed saying ‘I resigned all my positions at ServiceMesh,’ we might have a horse race,” Boren reportedly said.

Following up on 12 May, the Court ruled that Pulier was entitled to receive some, but not all, of the fee advancement claims his legal team was calling for.

“I am granting in part and denying in part the motions by each side. The bottom-line effect of this ruling will be to award Mr. Pulier advancement for his defense of most but not all of the counts asserted against him in the underlying action,” the Court’s chancellor, Andre G. Bouchard, said in a statement.

“Accordingly, in my opinion, he [Pulier] is entitled to advancement for 80 per cent of his reasonable expenses to defend against the underlying litigation,” he said.

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Tags CBAcscServiceMeshKeith HunterEric Pulier

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