A COMPANY backed by Claret Capital, Domhnal Slattery’s private equity group, is suing technology giant IBM and four of its top executives for $100m for alleged fraud and racketeering.
An IBM spokesperson told a technology blog that the case would be “defended vigorously”. Devon IT, an American company, and one of its Irish subsidiaries have filed the suit in a row over two failed joint ventures to build computer servers. The Blade and iDataPlex projects once projected sales of $1 billion.
Devon borrowed $12m in unsecured, interest-free loans from Claret in 2006 and 2007 to invest in the projects. The Irish company also took equity stakes of 10% and 33% in two Devon subsidiaries.
The projects did not reach completion and Devon accused IBM of scrapping them. Devon also accused IMB executives of funnelling the money secretly into other projects in IBM’s hardware division.
Devon has defaulted on its loans from Claret, which it had been due to repay using royalties from Blade and iDataPlex. Slattery’s company has registered judgments for $3.5m against Devon, but has yet to get any of its cash back.
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Devon claims that the IBM executives demanded that cash borrowed from Claret be wired to them, even after they had allegedly scrapped the Blade project in secret.
According to court documents filed in Philadelphia by Devon, at a February 2008 meeting in Dublin, Paul Kealy, who worked for Claret, asked an IBM executive why Blade sales were so low. It is claimed that at this meeting, the IBM executive concealed the fact that the project had been secretly cancelled.
Devon also alleges that it and Claret were put under pressure by another IBM executive to invest in a computer games company called GeeVee, owned by his son.
Devon is suing IBM under the civil code of the Racketeer Influenced and Corrupt Organisations (Rico) laws, which were enacted to combat the mafia. It claims it is owed the $12m it got from Claret, plus $20m it invested in “support” systems. Under Rico laws, plaintiffs can claim treble the amount of damages, meaning it could get almost $100m it if wins.
Claret last week declined to say whether it had invested in GeeVee.