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Sun-Microsystems Admits To Possibly Breaking Bribery Law

May 9, 2009

Sun Microsystems Inc., a hardware maker that Oracle Corp is buying for more than $7 billion, admitted Friday that it may have broken a U.S. law which prohibits companies from bribing foreign officials.

It is yet to be seen how Sun’s admission will affect the company.

In a 10-Q filing with the U.S. Securities and Exchange Commission, Sun said, “We have identified potential violations of the Foreign Corrupt Practices Act, the resolution of which could possibly have a material effect on our business.”

The Foreign Corrupt Practices Act prohibits U.S. companies and companies whose stock is traded in the U.S. from bribing foreign government officials to increase business.

Sun opted not to disclose any details pertaining to the date or location of the occurrence, but only said that it “took remedial action” and notified the investigating parties, the Justice Department and Securities and the Exchange Commission. It has hired outside attorneys to assist in investigating the matter, which was identified in its current fiscal year that began in July 2008.

Sun says that potential disciplinary measures could include fines, criminal sanctions and a ban from doing business with the U.S. federal government. The federal government is one of Sun’s major sources of revenue.

Some prior cases have resulted in huge fines and penalties, and legal experts claim that prosecution of corruption charges have increased at a rapid rate as more business is done globally.

One of the biggest cases of its kind resulted in Siemens AG agreeing in December to pay over $1 billion in fines to Germany and the U.S. to settle serious corruption charges, which involved the Munich-based company bribing officials with suitcases filled with cash in order to obtain government contracts.

Punishments are usually less severe, but no firm is safe from the possibility of such corruption.

In 2007, networking provider Alcatel-Lucent paid $2.5 million to settle charges that the company illegally paid for hundreds of trips for Chinese officials to win contracts. This was before Alcatel SA bought Lucent Technologies in 2006.

In a separate case, IBM Corp. agreed to pay $300,000 in 2000 in order to settle accusations that its Argentina subsidiary participated in bribing officials of a government-owned bank in order to win a contract that would upgrade the bank’s computer systems.

In Oracle’s own regulatory filing on Friday, it said that it had already been informed of the alleged violations before signing the agreement to buy Sun last month.

The deal is expected to be finalized this summer and will not likely encounter antitrust objections since the companies have very little overlap.

Oracle wants Sun because it’s attempting to put together its own one-stop technology shop to sell services, software and hardware.

If the acquisition falls through, Sun might be required to pay a $260 million breakup fee and reimburse Oracle up to $45 million in expenses.

Shares of Santa Clara-based Sun rose 3 cents to close at $9.13. Shares in Oracle, based in Redwood Shores, fell 10 cents to close at $18.32.

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