False Claims Act suit settles, likely connected to former DOJ lawyer who obstructed justice

A qui tam False Claims Act suit that appears to have played a central role in the downfall of a former federal prosecutor convicted of tipping off private companies about sealed complaints against them has settled.

Sunnyvale-based cybersecurity software provider Fortinet Inc. has agreed to pay $545,000 to end the suit, which alleges the company violated federal labeling laws for government contractors by removing stickers from products Fortinet sold that were manufactured in China.

Under the agreement, which was unsealed in the Northern District of California Friday, Fortinet will pay $400,000 to the U.S. government and provide $145,000 in products -- various security software packages -- to the Marine Corps.

Fortinet contends it did not violate the Trade Agreements Act, which requires products sold to the federal government be substantially manufactured in the United States or other approved countries, but stipulated that a former employee between 2009 and 2016 directed his subordinates to remove labels indicating that certain products were made in China.

Many of those products were sold to the U.S. government.

The company defended itself in a statement to the Daily Journal Monday, saying it took action to terminate the employee responsible for the labeling fraud.

"We hold ourselves to the highest ethical standards of trust and integrity," Fortinet spokesperson Sandra Wheatley said in an email Monday. "This was an isolated incident that involved events from more than two years ago in which a rogue former employee acted against our policies."

The lawsuit, filed by attorneys with Sanford Heisler Sharp LLP, tracks closely with the downfall of Jeffrey Wertkin, a former federal prosecutor who pleaded guilty in 2017 to charges of obstruction of justice and interstate transportation of stolen goods after it was revealed he had engaged in a scheme to sell sealed complaints to companies targeted by the Department of Justice.

At the time, the former DOJ prosecutor was a partner at Akin Gump Strauss Hauer & Feld LLP in Washington, D.C., where he worked in the firm's white-collar practice.

Charging and plea documents related to Wertkin's case do not list the names of companies he approached, but an affidavit supporting his arrest indicates that he had tipped off a company "that provides technology security and is headquartered in Sunnyvale" about a False Claims Act complaint filed against it in the Northern District of California assigned to U.S. Magistrate Judge Jacqueline Scott Corley.

The lawsuit against Fortinet had been assigned to Corley, according to court documents. United States ex rel. Fang v. Fortinet, 16-CV314 (N.D. Cal., filed Jan. 20, 2016).

Wertkin offered to sell a full copy of the complaint -- at the time filed under sea -- to the Sunnyvale company's corporate leadership for $310,000. But a high-ranking employee at the company alerted federal authorities of the offer and participated in an undercover investigation to catch Wertkin.

A spokesman for the U.S. attorney's office for the Northern District in California declined to comment on whether the two cases were related.

But H. Vincent McKnight Jr., a partner at Sanford Heisler who brought the qui tam lawsuit against Fortinet, suggested they were.

"On the one hand, Fortinet engaged in a brazen and fraudulent scheme that included creating phony labels, but on the other hand, the company did the right thing when Wertkin offered to sell it sealed government documents," he said in a statement. "I am certain its cooperation influenced the amount of the final settlement agreement on the mislabeling charges."