Complaint in SEC v. IBM.
U.S.D.C., D.D.C., Case No. ______.
Re: violation of Section 13(b)(2)(A) of the Exchange Act.
Date filed: December 21, 2000.

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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

COMPLAINT

Plaintiff Securities and Exchange Commission ("Commission") alleges that:

JURISDICTION

1. This Court has jurisdiction pursuant to Sections 21(d)(3) and 27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78u(d)(3) and 78aa.

DEFENDANT

2. International Business Machines Corporation ("IBM") is a New York corporation with its headquarters in Armonk, New York. The common stock of IBM is registered with the Commission pursuant to Section 12(b) of the Exchange Act and is listed on the New York Stock Exchange.

OTHER RELEVANT ENTITIES AND PERSONS

3. IBM-Argentina, S.A. ("IBM-Argentina") is an indirectly wholly-owned subsidiary of IBM with its headquarters in Buenos Aires, Argentina. IBM-Argentina reports to IBM through the Latin America division of IBM-World Trade Corporation, which division is now headquartered in Miami, Florida.

4. Banco de la Nacion Argentina ("BNA") is a government-owned commercial bank in Argentina. BNA entered into a $250 million systems integration contract with IBM-Argentina in 1994 (the "Contract").

5. Capacitacion Y Computacion Rural, S.A. ("CCR") is an Argentine corporation that was a subcontractor to IBM-Argentina on the BNA Contract.

6. Gustavo Soriani ("Soriani") was IBM-Argentina’s Vice President of Operations until his termination in September 1995. He resides in Argentina and is a citizen of that country.

7. Ricardo Martorana ("Martorana") was IBM-Argentina’s General Manager until his resignation in September 1995. He resides in Argentina and is a citizen of that country.

8. Javier Orcoyen ("Orcoyen") was IBM-Argentina’s Vice President of Finance until his resignation in September 1995. He resides in Argentina and is a citizen of that country.

9. Soriani, Martorana and Orcoyen were, at the time of their departure, the three highest-ranking officials at IBM-Argentina and are referred to herein collectively as "IBM-Argentina’s Former Senior Management."

FACTUAL ALLEGATIONS

10. In January 1994, IBM-Argentina submitted a proposal to BNA for a system to modernize and fully integrate the computers in its main and branch offices.

11. In February 1994, BNA awarded the Contract to IBM-Argentina. The Contract was one of IBM-Argentina’s largest contracts.

12. Without the knowledge or approval of any IBM employee in the United States, IBM-Argentina’s Former Senior Management caused IBM-Argentina to enter into a subcontract (the "Subcontract") with CCR. Under the Subcontract, CCR purportedly agreed to provide certain services to IBM-Argentina, including an alternative banking software system for BNA. The total amount of the Subcontract was $37 million.

13. During 1994 and 1995, IBM-Argentina paid CCR approximately $22 million under the Subcontract, of which at least $4.5 million was transferred to several BNA directors by CCR.

14. In connection with the Subcontract, IBM-Argentina’s Former Senior Management overrode IBM procurement and contracting procedures, and hid the details of the Subcontract from the technical and financial review personnel assigned to the Contract. Although IBM’s procurement procedures specified that a Procurement department employee should have performed and documented certain reviews in connection with the Subcontract, those procedures were overridden by IBM-Argentina’s Former Senior Management by providing the Procurement department with fabricated documentation, including a backdated authorization letter and a document that stated incomplete and inaccurate reasons for hiring CCR.

15. After IBM-Argentina’s Former Senior Management were able to bypass IBM-Argentina’s established procurement review procedures, they caused the issuance of a purchase order for CCR’s services. Based on the documents referenced in paragraphs 14 and 15, IBM-Argentina paid CCR approximately $22 million.

16. IBM-Argentina recorded the payments to CCR in its books and records as third-party subcontractor expenses.

17. While IBM did not falsify or destroy any records, in consolidating its subsidiaries’ financial results, and without the knowledge or approval of any employee in the United States, this information was incorporated into IBM’s 1994 Form 10-K, which was filed with the Commission on March 23, 1995.

CAUSE OF ACTION
Violation of Section 13(b)(2)(A)
of the Exchange Act

18. Plaintiff realleges and incorporates by reference paragraphs 1 through 17 above.

19. Section 13(b)(2)(A) of the Exchange Act requires a reporting company to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect its transactions and disposition of assets. 15 U.S.C. §§ 78m(b)(2)(A). Such companies are also responsible for ensuring that their wholly-owned foreign subsidiaries comply with Section 13(b)(2)(A).

20. IBM violated Section 13(b)(2)(A) by failing to ensure that IBM-Argentina maintained books and records which accurately reflected IBM-Argentina’s transactions and dispositions of assets with respect to the Subcontract. The presumably illicit payments to the foreign officials were not disclosed in IBM-Argentina’s books and records. Instead, IBM-Argentina’s books and records include incomplete and inaccurate descriptions of CCR’s services, and a backdated authorization document.

PRAYER FOR RELIEF

WHEREFORE, plaintiff Commission respectfully requests that this Court enter a Final Judgment ordering Defendant IBM to pay a civil penalty pursuant to Section 21(d)(3)(B)(i) of the Exchange Act.

Dated: December 21, 2000