CSC to pay $190M for NHS fraud claims

June 8, 2015 in Medical Technology

CSC has agreed to settle with the Securities and Exchange Commission to the tune of $190 million, after SEC charged the firm with “manipulating financial results and concealing significant problems” related to its massive IT contract for U.K.’s National Health Service

That contract was part of NHS’ since-abandoned National Programme for IT initiative, a disastrously problem-plagued project marked by huge cost overruns, missed deadlines and undelivered promises.

Launched in 2002, the £11 billion initiative was billed as the biggest civilian technology undertaking in the world – a top-down plan to outfit hospitals and health trusts nationwide with electronic health records linked into an interoperable NHS-wide framework.

In 2011, the UK pulled the plug on the project after wasting more than £6 billion over nearly a decade, finally deciding that a group of vendors, including CSC, was unfit to provide “the modern IT services that the NHS needs.”

The SEC settlement announced this past Friday alleges that CSC’s fraud “began after the company learned it would lose money on the NHS contract because it was unable to meet certain deadlines.”

To avoid that dent in its earnings, CSC executives added “accounting models that artificially increased its profits but had no basis in reality,” SEC alleges.?

It then “continued to avoid the financial impact of its delays by basing its models on contract amendments it was proposing to the NHS rather than the actual contract,” according to SEC. “In reality, NHS officials repeatedly rejected CSC’s requests that the NHS pay the company higher prices for less work. By basing its models on the flailing proposals, CSC artificially avoided recording significant reductions in its earnings in 2010 and 2011.”

In addition to the $190 million penalty, five of eight charged CSC executives have agreed to settlements. Former CEO Michael Laphen will return more than $3.7 million in compensation under the clawback provision of the Sarbanes-Oxley Act and pay a $750,000 penalty, according to SEC. Former CFO Michael Mancuso will return $369,100 in compensation and pay a $175,000 penalty.

The executives repeatedly failed to comply with rules requiring disclosure of these issues, and made public statements about the NHS contract that misled investors about CSC’s performance, SEC alleges.

“When companies face significant difficulties impacting their businesses, they and their top executives must truthfully disclose this information to investors,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement, in a press statement. “CSC repeatedly based its financial results and disclosures on the NHS contract it was negotiating rather than the one it actually had, and misled investors about the true status of the contract.”

Read our coverage of the NPfIT project here.

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