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KASOWITZ, BENSON, TORRES & FRIEDMAN LLP


MARK P. RESSLER (admitted Pro Hac Vice)
E-mail: mressler@kasowitz.com
RONALD R. ROSSI (admitted Pro Hac Vice)
E-mail: rrossi@kasowitz.com
R. TALI EPSTEIN (admitted Pro Hac Vice)
E-mail: tepstein@kasowitz.com
1633 Broadway
New York, New York 10019-6799
Telephone: (212) 506-1700
Facsimile: (212) 506-1800
PATRICK K. FAULKNER (SBN 070801)
County Counsel
E-mail: pfaulkner@co.marin.ca.us
SHEILA SHAH LICHTBLAU (SBN 167999)
Deputy County Counsel
E-mail: slichtblau@co.marin.ca.us
3501 Civic Center Drive, Room 275
San Rafael, California 94903
Telephone: (415) 499-6117
Facsimile: (415) 499-3796
Attorneys for Plaintiff
COUNTY OF MARIN

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IN THE UNITED STATES DISTRICT COURT


FOR THE NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION

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COUNTY OF MARIN,

CIVIL ACTION NO. CV11-0381-SI

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Plaintiff,

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AMENDED COMPLAINT

vs.
DELOITTE CONSULTING LLP, SAP
AMERICA, INC., SAP PUBLIC SERVICES,
INC. and ERNEST W. CULVER,

Judge: Honorable Susan Illston


Courtroom: 10, 19th Floor

Defendants.

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Plaintiff the County of Marin (the County), for its amended complaint against Deloitte
Consulting LLP (Deloitte), SAP America, Inc. and SAP Public Services, Inc. (together, SAP

COUNTY OF MARINS AMENDED COMPLAINT AGAINST DELOITTE CONSULTING LLP,


SAP AMERICA, INC., SAP PUBLIC SERVICES, INC. AND ERNEST CULVER

Case3:11-cv-00381-SI Document63 Filed04/06/11 Page2 of 63

or the SAP Defendants) (Deloitte and the SAP Defendants are sometimes collectively referred to

as the Enterprise) and Ernest W. Culver (Culver), alleges as follows:

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PRELIMINARY STATEMENT
1.

This action arises from the Enterprises illegal and continuing scheme to defraud

governmental entities and reap tens of millions of dollars in ill-gotten gains in connection with the

licensing and implementation of an enterprise resource planning (ERP) software known as SAP

for Public Sector, developed by the German software company SAP AG.

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2.

The SAP Defendants often partner with Deloitte, a large consulting firm, to

generate sales of their SAP for Public Sector software, which they license and market throughout

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the United States. By relying on Deloitte to recommend SAP for Public Sector software to

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potential public sector customers, SAP is able to leverage its ability to secure software licensing,

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maintenance and support contracts in the highly competitive public sector ERP marketplace.

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Deloitte, in turn, benefits from its partnership with the SAP Defendants by receiving their

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endorsement as a leading and highly skilled SAP for Public Sector implementation firm. As a

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result, Deloitte is able to heighten its ability to be hired by public sector entities and thereby obtain

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lucrative consulting fees implementing SAP for Public Sector software.

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3.

As both the SAP Defendants and Deloitte know, however, Deloitte in fact has a

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limited number of consultants with the requisite skills and experience to compete in the

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competitive SAP for Public Sector marketplace. Accordingly, Deloitte intentionally misrepresents

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its skills and abilities in order to induce public sector entities to hire it for such engagements. The

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SAP Defendants support and enable this fraudulent conduct by, among other things, falsely touting

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Deloitte as a highly skilled implementation partner and, at times, jointly participating with Deloitte

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in sales pitches. By having Deloitte recommend that public entities license SAP for Public Sector

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software, SAP is able to magnify the reach of its own sales efforts and further penetrate the public

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sector ERP marketplace. Similarly, by exploiting SAPs endorsement of its purported SAP

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implementation skills, Deloitte is able to convince customers -- falsely -- that it has sufficient

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numbers of skilled consultants to properly implement SAP for Public Sector software.

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4.

Seizing upon public entities general lack of SAP experience, Deloitte, with the
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COUNTY OF MARINS AMENDED COMPLAINT AGAINST DELOITTE CONSULTING LLP,


SAP AMERICA, INC., SAP PUBLIC SERVICES, INC. AND ERNEST CULVER

Case3:11-cv-00381-SI Document63 Filed04/06/11 Page3 of 63

SAP Defendants seal of approval, holds itself out to prospective public sector customers as a

premier SAP Partner. The SAP Defendants, in turn, vouch for Deloittes depth of qualified

resources; market Deloitte to prospective customers as the go-to team with excellent

capabilities and a significant edge in industry, functional, and geographic market knowledge,

experience, and competency; and endorse Deloitte as a Global SAP Partner, routinely

bestowing upon Deloitte numerous awards and accolades, including the SAP Services Partner

Award of Excellence. Deloitte further represents that: (a) its public sector practitioners are

specialists; (b) its SAP practice is deeply experienced; (c) its consultants possess a thorough

understanding of government programs and operations; and (d) its A team is always at the

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ready.
5.

In their internet marketing materials, the SAP Defendants further induce

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prospective Deloitte customers by assuring them that a decision to hire Deloitte and license the

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SAP software offers them the opportunity of [l]everaging the full range of SAP software

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capabilities -- and Deloittes depth and breadth of skills and services. In truth and in fact,

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however, the SAP Defendants, and Deloitte itself, know that Deloitte does not have the depth or

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breadth of essential SAP for Public Sector skills.

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6.

In some instances, where Deloittes lack of skills causes significant SAP system

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problems, Deloitte and the SAP Defendants continue their fraudulent scheme by taking steps to

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conceal such problems from their public sector customers. Such acts of concealment include,

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among other things, misrepresenting the status and progress of the project; deliberately failing to

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conduct the kind of proper testing that would reveal the extent of the problems; silencing

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employees who raise questions about Deloittes deficient skills and work; and corruptly

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influencing customer employees to approve Deloittes deficient work and to recommend that

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Deloitte and SAP be awarded additional work.

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7.

By taking steps to conceal problems until after a new SAP system goes live,

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Deloitte and the SAP Defendants are able to further exploit their public sector clients by

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demanding, and often obtaining, additional fees to remedy the very problems that Deloitte and the

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SAP Defendants had concealed, and that had been caused by Deloittes incompetence in the first
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place.
8.

As part of their scheme, Deloitte and the SAP Defendants targeted the County by

misrepresenting Deloittes SAP for Public Sector skills and experience. Deloitte and the SAP

Defendants falsely represented that Deloitte, by virtue of its alliance with the SAP Defendants,

was uniquely qualified to properly implement SAP for Public Sector software. These

representations were false because, at the time they were made, Deloitte and the SAP Defendants

knew that Deloitte in fact lacked the ability and/or the intention to provide the County with

appropriately skilled consultants. By defrauding the County in this manner, the Enterprise was

able to obtain a highly lucrative public sector implementation contract for Deloitte, and licensing,

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maintenance and support contracts for the SAP Defendants.


9.

In or about the fall of 2005, several months into the implementation of SAP for

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Public Sector software at the County (the Project), Deloitte and the SAP Defendants

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fraudulently induced the County into implementing a brand new version of SAP software, known

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as ERP 2005. To do so, Deloitte and the SAP Defendants concealed the grave risks to the County

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of becoming an early adopter of SAP software, or what SAP refers to as a Ramp-Up customer.

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Foremost among these concealed risks was that posed by the incompetent Deloitte consultants,

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who were inexperienced with the old software, and were even less qualified with the new, more

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complex ERP 2005 software. Inducing the County into becoming a Ramp-Up customer enabled

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Deloitte to use the County as its implementation guinea pig for learning the new ERP 2005

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software. The SAP Defendants benefitted because they in turn could market the new software by

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using Deloittes purported implementation experience as a selling point with other potential public

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sector customers.

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10.

In addition to concealing the Ramp-Up risks from the County, the Enterprise further

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concealed implementation problems resulting from Deloittes lack of skills, and thereby ensured

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that the County went live with the SAP system on the scheduled go-live dates, in order to secure

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payment of their fees. Such misconduct included deliberate under-testing of the SAP system by

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Deloitte to obtain artificially positive results and thereby conceal system defects; attempts by

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Deloitte and the SAP Defendants to silence an employee who raised issues with Deloittes
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deficient implementation work; and efforts by Deloitte and the SAP Defendants to corruptly

influence defendant Culver, a County official who was also the Countys Project Director, to cover

up Deloittes deficient implementation work, obtain payment for work that was not properly

performed (or not performed at all) and cause the County to enter into additional contracts with

Deloitte and the SAP Defendants.

11.

As part of its corrupt dealings with defendant Culver, Deloitte unlawfully

influenced Culver to approve Deloittes deficient work and thereby ensure payment of Deloittes

fees. Senior Deloitte officials influenced Culver with promises of employment at Deloitte and

lavish dinners. Through such conduct, Deloitte intended to, and did, influence Culver to approve

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Deloittes deficient work and cause the County to enter into new contracts with Deloitte and SAP

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Public Services, Inc. to ensure they would continue to receive fees from the County. The SAP

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Defendants knowingly participated in Deloittes bribery of Culver by engaging him in employment

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discussions at the same time that SAP Public Services, Inc. was asking him to pay Project invoices,

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and that Deloitte was asking him to approve its defective Project work. Indeed, not long after

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Culver approved Deloittes defective work, and caused the County to execute new contracts with

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Deloitte and the SAP Defendants and pay substantial fees to Deloitte and SAP Public Services,

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Inc., SAP Public Services, Inc. hired Culver for a lucrative sales position targeting public sector

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entities.

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12.

Such misconduct by the Enterprise constitutes, among other things, a violation of

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the Racketeer Influenced and Corrupt Organizations Act (RICO), with predicate acts of mail

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fraud in violation of 18 U.S.C. 1341, wire fraud in violation of 18 U.S.C. 1343 and 1346 and

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bribery in violation of California Penal Code 7. The Enterprise further: (a) conspired to violate

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RICO, 18 U.S.C. 1962(d) and 1964(c); (b) aided and abetted fraud; (c) aided and abetted

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Culvers breach of fiduciary duty; (d) executed a conspiracy in violation of California state

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common law; and (e) violated a California anti-corruption statute (California Government Code

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1090).

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13.

Four years after the initial go-live of the SAP system that Deloitte defectively

designed and implemented -- and after incurring more than $30 million in damages (including
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paying Deloitte more than $11 million in consulting fees, and the SAP Defendants more than $4

million) -- the County concluded that the SAP system needed to be replaced because it could not

perform the Countys basic financial, payroll and human resources functions. Accordingly, the

County seeks to recover the damages that defendants inflicted on the County, to be trebled under

the RICO statute, as well as punitive damages for defendants egregious conduct.

14.

The fraudulent scheme that Deloitte and the SAP Defendants perpetrated on the

County is consistent with a pattern and practice of similar misconduct that they have perpetrated

on other public entities, including those in Los Angeles, San Antonio, Colorado and Miami-Dade

in connection with the implementation of SAP for Public Sector software.


THE PARTIES

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15.

Plaintiff County is a political subdivision of the State of California.

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16.

Defendant Deloitte is a limited liability partnership organized under the laws of the

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State of Delaware and has its principal place of business in New York, New York. Deloitte is the

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consulting services arm and subsidiary of Deloitte & Touche USA LLP, the U.S. member of

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Deloitte Touche Tohmatsu, one of the worlds largest accountancy and professional services firms.

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Defendant SAP America, Inc. is a corporation organized under the laws of the State

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of Delaware and has its principal place of business in Newtown Square, Pennsylvania. SAP

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America, Inc. is a wholly-owned subsidiary of SAP AG, a German software corporation that

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develops and provides enterprise software applications and is the worlds largest business software

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company.

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Defendant SAP Public Services, Inc. is a corporation organized under the laws of

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the State of Delaware and has its principal place of business in Washington, District of Columbia.

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SAP Public Services, Inc. is a wholly-owned subsidiary of SAP America, Inc.

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19.

Defendant Culver is a resident of and domiciled in Marin County, California and is

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currently employed as a Client Services Executive with SAP Public Services, Inc. At all times

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relevant to this litigation and until July 6, 2007, Culver served as the Assistant Auditor-Controller

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for the County. At all times relevant to this litigation and until March 1, 2007, Culver served as

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the Countys Project Director.


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JURISDICTION AND VENUE

20.

This Court has jurisdiction over the subject matter of this case pursuant to 18

U.S.C. 1964 and 28 U.S.C. 1331. This Court may exercise supplemental jurisdiction over the

state-law causes of action pursuant to 28 U.S.C. 1367.

21.

This Court has personal jurisdiction over the defendants because the defendants

have engaged in continuous and systematic business in California and the actions giving rise to

this lawsuit, at least in part, were taken by the defendants in California. Further, in accordance

with Californias long-arm statute, California Code of Civil Procedure 410.10, this Court has

personal jurisdiction over Deloitte, a limited liability partnership that does business in the State of

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California; SAP America, Inc., a corporation that does business in the State of California; SAP

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Public Services, Inc., a corporation that does business in the State of California; and Ernest W.

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Culver, a resident domiciled in the State of California.

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22.

Venue is proper in this District pursuant to 28 U.S.C. 1391(b) and (c) because

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the defendants reside in this District and a substantial part of the conduct alleged herein occurred

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in this District.

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STATEMENT OF FACTS
I.

The Racketeering Enterprise

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A.

The Racketeering Scheme

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This action arises from a pervasive, unlawful and continuing fraudulent scheme

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that has targeted and severely harmed the County, as well as other public sector entities in Los

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Angeles, California; San Antonio, Texas; Colorado; and Miami-Dade County, Florida.

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24.

As part of this continuous scheme, the SAP Defendants, which market and license

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SAP for Public Sector software to public entities throughout the United States, rely on Deloitte as

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a partner to generate sales of SAP software. By relying on Deloitte to recommend SAP

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software to potential public sector customers, SAP is able to leverage its ability to secure software

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licenses in the public sector ERP marketplace. For its part, Deloitte benefits from its partnership

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with the SAP Defendants by receiving their endorsement as a leading and highly skilled

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implementation services firm. As a result, Deloitte is able to increase its own ability to be hired
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by public sector entities and thereby obtain lucrative consulting fees implementing SAP for Public

Sector software.

25.

Because -- as both the SAP Defendants and Deloitte know -- Deloitte in fact lacks

the depth and breadth of SAP for Public Sector skills and experience necessary to compete in the

public sector ERP marketplace. Deloitte, as a further part of the scheme, intentionally

misrepresents its skills and abilities in order to induce public sector entities to hire Deloitte for

such engagements. The SAP Defendants support and enable this conduct by, among other things,

falsely touting Deloitte as a highly skilled and valued implementation partner and, at times, jointly

participating with Deloitte in sales pitches. Through its reliance on Deloittes sales efforts touting

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SAP software, SAP is able to magnify the reach of its sales force and further penetrate the public

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sector ERP marketplace. Similarly, by relying on SAPs endorsement of its purported

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implementation skills, Deloitte is able to convince customers -- falsely -- that it has sufficient

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numbers of skilled consultants to properly implement SAP for Public Sector Software.

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26.

Recognizing that public sector entities such as the County typically have little or no

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prior knowledge of SAP software or experience with complex ERP implementations, Deloitte,

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with the endorsement, knowledge and approval of the SAP Defendants, touts itself to prospective

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public sector customers as a premier SAP Partner (as they did to the County). The SAP

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Defendants, in turn, vouch for Deloittes depth of qualified resources (as they did to the County);

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market Deloitte to prospective customers as the go-to team with excellent capabilities and a

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significant edge in industry, functional, and geographic market knowledge, experience, and

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competency (as they did to the County); and endorse Deloitte as a Global SAP Partner (as they

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did to the County), routinely bestowing upon Deloitte numerous awards and accolades, including

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the SAP Services Partner Award of Excellence. Deloitte further represents that: (a) its public

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sector practitioners are specialists; (b) its SAP practice is deeply experienced; and (c) its

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consultants possess a thorough understanding of government programs and operations.

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27.

In their marketing materials, the SAP Defendants further lure prospective Deloitte

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customers (as they did to the County) by assuring them that a decision to hire Deloitte and license

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the SAP software offers them the opportunity of [l]everaging the full range of SAP software
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capabilities -- and Deloittes depth and breadth of skills and services.


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As an inducement to contract, Deloitte and the SAP Defendants market their

alliance and collaboration as a benefit to our customers. Yet far from collaborating to

benefit their customers, Deloitte and the SAP Defendants at times use their alliance to defraud

customers, such as the County, out of millions of dollars in fees.

29.

In some instances, where Deloittes lack of skills might result in public sector

clients terminating engagements because of system problems, Deloitte and the SAP Defendants

continue their fraudulent scheme by taking steps to conceal such problems from the customer.

These steps often include misrepresenting the status and progress of the project; deliberately

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failing to conduct the kind of proper testing that would reveal the extent of the problems; silencing

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employees who raise questions about Deloittes deficient skills and work; and corruptly

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influencing customer employees to approve Deloittes deficient work and to recommend that

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Deloitte and SAP be awarded additional work.

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30.

By deliberately taking steps to conceal problems until after the new SAP system

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goes live, Deloitte and the SAP Defendants further exploit their public sector clients by demanding

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substantial additional fees to remedy the very problems that Deloitte and the SAP Defendants had

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concealed, and that had been caused by Deloittes incompetence. Deloitte and the SAP

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Defendants benefit from the post-go-live chaos by convincing the client that additional fees are

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warranted in connection with remediation efforts.

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31.

For example, with respect to the County, Deloitte and the SAP Defendants, in

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concert with each other and others, intentionally concealed problems and risks to the Countys

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Project so that they remained hidden from the County until after the SAP system, defectively

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designed and implemented by Deloitte, went live, by which time Deloitte had already received

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substantial payment for its defective implementation work, and SAP had received licensing fees

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for the SAP for Public Sector software. Moreover, to ensure that system defects did not come to

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light prior to the scheduled go-live dates, Deloitte and the SAP Defendants jointly undertook

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efforts to silence an SAP employee who had raised concerns about defects with Deloittes

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implementation work. Deloitte also engaged in under-testing to ensure that system defects did
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not come to light prior to the go-live, by conducting truncated, simplistic and incomplete tests that

were intended to produce artificially positive results.

32.

After the defective and malfunctioning SAP system went live and the County was

unable to use the system to operate its core processes, Deloitte and the SAP Defendants offered to

provide costly post-production support to address the problems plaguing the SAP system --

problems stemming directly from Deloittes failure in the first instance to provide the County with

skilled consultants with the requisite SAP and public sector experience.

33.

The scheme by Deloitte and the SAP Defendants against the County further

involved the bribery of, and other corrupt dealings with, Culver, who was the Countys Project

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Director. Specifically, Deloitte and the SAP Defendants concealed problems with the Countys

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implementation by unlawfully influencing Culver, inducing him with promises of employment in

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the private sector and other consideration in exchange for his approving Deloittes deficient work

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and ensuring the payment of Deloittes and SAP Public Service, Inc.s fees. In addition to

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obtaining approval of Deloittes deficient work and payment of unjustified invoices, Deloitte also

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had Culver cause the County to enter into additional contracts with Deloitte and SAP Public

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Services, Inc., enabling them to obtain even more fees.

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B.

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The Racketeering Members


a.

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Deloitte

Deloitte is the consulting arm of Deloitte & Touche USA LLP, the U.S. member of

Deloitte Touche Tohmatsu, which is considered to be the largest consulting provider in the world.
For its 2010 fiscal year, Deloitte Touche Tohmatsu announced aggregate member firm revenues of
$26.6 billion, with revenue from its consulting divisions reported at $7.5 billion, amounting to a
15% increase in consulting revenues compared to the prior year. A 33% growth in technology
integration revenues and a 38% growth in public sector revenues were also reported. With respect
to Deloitte, members of the Enterprise include, but are not limited to, the following:
i. Mark Anderson (Anderson), Deloitte Manager;
ii. Dave Bowen (Bowen), Deloitte Principal;
iii. Steve Brooks (Brooks), Deloitte Manager;
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iv. Nick Chiominto (Chiominto), Deloitte Director and Partner;

v. Carlo Grifone (Grifone), Deloitte Client Services Representative;

vi. Sam Parikh (Parikh), Deloitte Manager;

vii. Sheetal Patel (Patel), Deloitte Lead Financial Consultant;

viii. Kirsten Mecklenburg (Mecklenburg), Deloitte Manager;

ix. Mark Seidenfeld (Seidenfeld), Deloitte Director;

x. Michelle Shuttleworth (Shuttleworth), Deloitte Manager; and

xi. H.T. Vaught (Vaught), Deloitte Director.

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b.
35.

The SAP Defendants

The SAP Defendants are subsidiaries of SAP AG, a German software corporation

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and the worlds largest provider of ERP software applications. In the first quarter of 2010, SAP

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reported a 97% increase in profit after tax and achieved a 387 million gain, almost double the

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196 million that the software giant posted in the first quarter of the previous year. With respect

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to the SAP Defendants, members of the Enterprise include, but are not limited to, the following:

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i.

Paul Blaney (Blaney), SAP Engagement Manager;

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ii.

Tamara Hillary (Hillary), SAP Consultant;

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iii.

John Meyer (Meyer), SAP Customer Service Executive; and

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iv.

Peggy Phelps (Phelps), SAP Account Executive.

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Nearly half of SAPs revenues derive from recurring maintenance and support fees

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recouped from customers who pay perpetual licensing fees to use the SAP software. It is reported

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that annual software maintenance and support fees, which are typically 20% or more of the initial

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software licensing fee, generate twice as much revenue as software salesand all of the profits.

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In 2009, SAP Public Services, Inc., the SAP America, Inc. subsidiary devoted primarily to

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developing software for public entities, earned more than 269 million in revenues.

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c.
37.

Other Enterprise Members

The Enterprise also includes other members, known and unknown, who participate

in and facilitate the scheme. With respect to the County, Deloitte engaged in corrupt dealings with
Culver, the Countys Project Director.
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C.

The Enterprises Targets

38.

The targets of the Enterprise are federal, state and municipal government entities --

typically, like the County, with little or no prior knowledge of SAP -- that rely on Deloitte to

provide the requisite skilled resources to deliver fully functioning SAP for Public Sector systems

able to operate basic and core business processes for public sector entities.

a.

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consists of an elected Board of Supervisors (BOS), which appoints the County Administrator
who is responsible for implementing BOS decisions, preparing the County budget, providing
Supervisors with the information they need to make decisions and coordinating the administration
of County government.
40.

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and fire protection) and state-established health care, welfare and other benefits. The County is the
one of the largest employers in the region, with approximately 2,500 employees on its payroll, and
also provides retirement benefits to pensioners.
41.

Countys government business.


b.

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The financial management, payroll and human resources (HR) systems are the

administrative backbone of the County and provide the essential infrastructure for carrying out the

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Serving a population of approximately 250,000 residents, the County provides its

constituents with regional services (such as libraries and parks), municipal services (such as police

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The County is one of nine northern California Bay Area counties located across the

Golden Gate Bridge from San Francisco. The legislative and executive body of the County

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The County

42.

Other Public Sector Victims

In addition to the County, other victims of the Enterprise (as described more fully

below) have included the Los Angeles Unified School District (LAUSD), the City of San
Antonio (San Antonio), the Colorado Department of Transportation (C-DOT) and the MiamiDade County Public Schools (M-DCPS).
II.

The Pattern of Racketeering Activity

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43.

On information and belief, the Enterprise members have engaged in a pattern and

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practice of racketeering beginning on or about 2001 to the present, which will likely to continue in
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the future, as the SAP Defendants and Deloitte continue to market their software and

implementation package to other susceptible public entities.

A.

The Countys Project

44.

In 2004, the County concluded that replacement of its then-existing largely manual,

fragmented and aging financial management, payroll and HR systems with a single ERP software

system would improve its internal efficiency and ability to serve its constituents.

45.

Given the complex operational processes and functional requirements unique to

public-sector entities, and because the County had no prior experience implementing an ERP

system, the County knew that it had to rely entirely on a software consulting firm to provide the

10

necessary resources, skills and experience to lead, manage and deliver a successful ERP

11

implementation.

12

46.

In April 2004, the County issued a Request for Proposal (RFP) seeking

13

responses only from those software integrators with proven experience in successfully installing

14

and implementing ERP systems in public-sector environments similar in size and scope to the

15

County. Recognizing that the success of the Project depended on the capabilities of the

16

consultants assigned and their experience implementing the chosen ERP software, the integrator-

17

selection process was structured so that the various consulting firm candidates would team up with

18

an ERP vendor of their choosing to pitch for the Project.


a.

19
20

47.

The Enterprise Responds To The Countys Request For Proposal

On or about June 7, 2004, the Enterprise submitted a response to the RFP,

21

proposing that the County select the SAP for Public Sector software and hire Deloitte to

22

implement the new ERP system.

23

48.

The Enterprise knew that the Countys primary criterion for retaining an integrator

24

was requisite public-sector software-implementation skills. Determined to obtain an

25

implementation and licensing agreement, respectively, Deloitte and the SAP Defendants falsely

26

represented in the RFP response that Deloitte had the ability and intention to provide the County

27

with consultants who had in-depth understanding of government programs, deep experience

28

with SAP implementations for state and local government, exceptional government skills and
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proven methods for successfully implementing the SAP for Public Sector software at the

County. Furthermore, the Enterprise falsely represented that Deloitte was committed to dedicating

its best resources to the Project, and described Deloitte as unmatched in terms of our bench

strength to draw additional resources where required.

49.

Throughout the lengthy integrator/software selection process, the Enterprise

repeatedly misrepresented Deloittes skills and experience, including at meetings and software

demonstrations attended by the County and the Enterprise members that took place on or about

September 13-16, 2004 and November 12, 2004 (the September and November Meetings).

50.

In particular, Deloitte marketed itself to the County as a premier SAP Partner,

10

while the SAP Defendants, in turn, vouched for Deloittes depth of qualified resources;

11

marketed Deloitte as the go-to team with excellent capabilities and a significant edge in

12

industry, functional, and geographic market knowledge, experience, and competency; and

13

endorsed Deloitte as a Global SAP Partner, routinely bestowing upon it numerous awards and

14

accolades, including the SAP Services Partner Award of Excellence. Deloitte further

15

represented that: (a) its public-sector practitioners are specialists; (b) its SAP practice is deeply

16

experienced; and (c) its consultants possess a thorough understanding of government programs

17

and operations.

18

51.

During the September and November Meetings, which took place, respectively, at

19

the Embassy Suites Hotel, 101 McInnis Parkway in San Rafael, California and at the Marin

20

Center, 10 Avenue of the Flags in San Rafael, County officials, including Reisenfeld and Hymel,

21

reiterated to Deloitte director Seidenfeld, Deloitte managers Brooks and Shuttleworth, and

22

Deloitte Principal Bowen that County employees did not have experience working on projects

23

involving SAP ERP software, and that if Deloitte was selected, the County would be relying

24

entirely on Deloitte consultants, who would be the only people on the Project with SAP software

25

knowledge.

26

52.

In response, the Enterprise falsely assured the County that Deloitte had assembled

27

a highly skilled and experienced public-sector-knowledgeable project team. Deloitte director

28

Seidenfeld repeatedly and falsely represented that Deloitte: (a) had the required resources, with
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deep public sector expertise, necessary to lead the County through a successful

implementation; (b) had assembled a veteran team of skilled SAP for Public Sector consultants

for the Project; (c) would obtain specialists from outside Deloitte, if necessary; and (d) was

providing the County with its A team. Seidenfeld made these oral representations to County

officials, including Mark Reisenfeld (Reisenfeld), Matthew Hymel (Hymel), the current

County Administrator, Heather Burton (Burton), Laura Armor (Armor) and Katie Gaier

(Gaier).

53.

At the November Meeting, Seidenfeld further assured Armor that Deloitte manager

Shuttleworth was part of the team that Deloitte had assembled for the Project. Deloitte promoted

10

Shuttleworth as having relevant Project experience and potential for providing value to the team.

11

54.

Oral misrepresentations to the County were not limited to those made by Deloitte

12

director Seidenfeld. Deloitte managers Brooks and Shuttleworth, who were introduced by

13

Seidenfeld at the September and November Meetings and were presented as a Deloitte senior

14

manager and manager, respectively, with apparent authority to speak on Deloittes behalf, also

15

falsely assured County officials, including Reisenfeld, Hymel, Burton, Armor and Gaier, that: (a)

16

Deloitte had staffed the Project team with experienced SAP for Public Sector consultants, and (b)

17

each of them would be dedicated as a full-time leader of the Deloitte Project team, from the

18

beginning of the Project through the implementation. These statements, which Brooks and

19

Shuttleworth made at the September and November Meetings, were false.

20

55.

Moreover, the SAP Defendants, through SAP account executive Phelps, among

21

others, collaborated with Deloitte director Seidenfeld and Deloitte manager Brooks to deceive the

22

County into believing that Deloittes partner status with the SAP Defendants would ensure that

23

Deloitte had the requisite SAP for Public Sector experience, when Phelps knew that Deloitte

24

lacked such capabilities.

25

56.

In the RFP response submitted to the County on June 7, 2004, the Enterprise made

26

additional false representations as part of its bait-and-switch sales strategy. These

27

representations included, but were not limited to, the following false and misleading statements of

28

past and existing fact:


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(a)

2
3

. . . we are uniquely qualified in our understanding of County issues and


challenges . . .

(b)

. . . deep experience with SAP implementations for state and local


government.

5
6

(c)

knowledgeable project team to work with you.

7
8

(d)

[W]e provide experienced consultants who have both breadth across SAP
modules and depth within SAP modules combined with implementation

10
11

[W]e have assembled a highly skilled and experienced public sector-

experience in public sector organizations.


(e)

[A] seasoned team with deep SAP, public sector and functional

12
experience.
13
14

(f)

unmatched.

15
16

(g)

17
18
19

The breadth of our capability and our understanding of the County is

Commitment to dedicate our best resources and bring tailored


implementation strategies to meet your long-term needs.

(h)

Deep bench strength.

(i)

An experienced team that has worked together before.

(j)

Every one of [our North American] installations is a solid client

20
21
reference.

22
23

(k)

aspects of ERP implementations.

24
25

(l)

26
27

Among Deloitte Consultings greatest strengths is the integration of all

To meet the needs of public sector clients, we are able to draw upon the
experience of a full range of public sector specialists in every area.

(m)

Deloitte Consulting is absolutely committed to the success of this project.

28
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(n)

1
2

implementation approach, and the strong project team needed to meet your

3
4
5
6
7
8
9
10
11
12
13

requirements and objectives.


57.

The representations by Deloitte and SAP Public Services, Inc., in their joint RFP

response concerning Deloittes purported skills and experience, were false and were made to
induce the County to enter into contracts with Deloitte and SAP Public Services, Inc. In deciding
to retain Deloitte as the systems integrator and license the SAP for Public Sector software, the
County relied on the misrepresentations in the jointly submitted RFP response, those made at the
September and November meetings and the clear partnership between Deloitte and the SAP
Defendants.
58.

Based upon these and other false written and oral representations, on or about

March 29, 2005, the County entered into the Implementation Services Agreement (the ISA) with
Deloitte and the Software License Agreement (the SLA) with SAP Public Services, Inc.

14

b.

15
16

Deloitte and SAP Public Services, Inc. have a winning solution, a proven

59.

The Enterprises Misrepresentations And Concealments Prior To The


Release I Go-Live

In or about May 2005, Deloitte dispatched its consultants to commence work on-

17

site at the Countys offices. The Project timeline set by Deloitte and incorporated in the ISA

18

provided for a phased approach under which: (a) the new SAP system running the Countys

19

financial processes would be implemented by July 3, 2006 (Release I), and (b) the Countys

20

payroll and HR processes would be operating on the new SAP system by January 3, 2007

21

(Release II).

22

60.

Soon after its work on the Project commenced, Deloitte began to field complaints

23

from the County that Deloitte had not provided sufficiently skilled consultants to the Project. For

24

example, an important consideration in the Countys decision to hire the Enterprise was Deloitte

25

director Seidenfelds pre-contract representation that Deloitte would assign Deloitte manager

26

Shuttleworth to the Project. Yet Shuttleworth only worked for a single day on the Project, and

27

half of the team members specifically identified in the written materials presented to the County at

28

the pre-contract meetings never showed up to work on the Project.


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61.

In addition, the County demanded that Deloitte immediately replace its assigned

Project manager, Parikh, who was incompetent, and assign skilled consultants. Parikh was

replaced by Brooks, who had been presented to the County during the sales cycle as Deloittes

proposed Project manager, but only joined the Project after Parikh was ousted. Even at this early

stage of the Project, Deloitte reassured the County that it had and would assign appropriately

skilled consultants to the Project.

62.

Despite these false assurances, Deloitte staffed the Project with dozens of neophyte

consultants, many of whom lacked even a basic understanding of SAP. Moreover, Deloitte

aggravated the problems on the Project caused by its inexperienced consultants by constantly

10
11

shuffling its personnel on to and off of the Project.


63.

Indeed, the Deloitte Project team was so inexperienced that many of the Deloitte

12

consultants, including Patel, Deloittes de facto lead financial consultant, attended the same basic

13

SAP boot camp training programs that County Project team members attended. Moreover,

14

Deloitte did not have a full range of public sector specialists in every area, as was represented to

15

the County. In fact, at no time during the Project was Deloitte able to provide the County with

16

consultants who had knowledge of SAPs Grants, Fixed Assets or Accounts Payable modules,

17

even though they were essential to the Countys financial management.

18

64.

Thus, through this bait-and-switch sales technique, the Enterprise induced the

19

County into hiring Deloitte in the belief that, based on the Enterprises specific representations,

20

Deloitte had the ability and intention to assign competent SAP for Public Sector personnel to the

21

Project. In fact, at the time it made these pre-contract representations, Deloitte knew that it had

22

nowhere near a sufficient number of consultants with the requisite skills and experience to deliver

23

a successful implementation, and Deloitte knew that it had no intention (because, among other

24

things, it had no capability or financial incentive) to source and assign such consultants to the

25

Project.

26

65.

As the months progressed, the Project fell further behind schedule and the Deloitte

27

consultants struggled to complete the design of the financial system in order to meet the Release I

28

go-live date.
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66.

Unbeknownst to the County at this time, the functional specifications and design

documents prepared by Deloitte consultants were incomplete, deficient and poorly designed. The

configuration decisions of Deloittes consultants were likewise deficient and flawed. Deloittes

design, programming and configuration failures were attributable directly to its consultants lack

of SAP and public-sector skills, their unfamiliarity with the SAP for Public Sector software and

functionality and their ignorance of, and failure to employ, SAP for Public Sector best practices.
c.

7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

67.

The Enterprise Fraudulently Induces The County Into Becoming A


Ramp-Up Customer

In or about the fall of 2005, several months into the Project, the Enterprise

recommended that instead of implementing the software the County had licensed pursuant to the
software license agreement, known as ERP 2004 software, the County should instead license and
implement a brand new version of SAP software, known as ERP 2005. The Enterprise advised the
County that to implement this new version of SAP software, the County would need to apply to
SAP to become a Ramp-Up customer.
68.

SAP touts its Ramp-Up program as a special offering, available only to a selected

number of customers, that enables them to effectively expedite the implementation of solutions
that are not yet generally available. Because Ramp-Up customers implement new versions of
SAP software that have not been previously used, SAP assures its Ramp-Up customers that it will
provide the guidance to go live with the new solution or release during the SAP Ramp-Up
phase, enabling such customers to gain access to our accelerated support channels and dedicated
backoffice coaches, as well as our product development and management team. SAP further
assures its Ramp-Up customers that through such special access, they can reduce
implementation-oriented costs and risks, become an early adopter of innovative SAP solutions,
and execute an innovation-oriented strategy for your enterprise or organization.
69.

In fact, however, involvement in SAPs Ramp-Up program presents extraordinary

implementation risks, as Ramp-Up involves the implementation of new software not yet tested in a
live production environment. Such risks not only include the potential that the software itself will
not work as intended, but also include the equally significant risk that few if any consultants will
have the requisite skills and experience to properly implement the new software. While SAP
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requires Ramp-Up customers to purchase the services of a special on-site SAP Ramp-Up coach

supplied by SAP, it also requires that the project integrator complete specialized training and be

deemed by SAP to be adequately prepared for the latest solution release. In urging the County

to become a Ramp-Up customer, SAP trumpeted the purported benefits of the new ERP 2005

software, such as its enhanced functionality, while downplaying many of the attendant Ramp-Up

risks, including the lack of consultants with ERP 2005 experience.

70.

For example, on or about June 30, 2005, to induce the County into switching from

ERP 2004 to ERP 2005, SAP Account Executive, Phelps sent County Project manger, Natalee

Hillman, an 18-page power point presentation that compared the new and enhanced

10

functionality of ERP 2005 to the old ERP 2004 software. In multiple pages of side-by-side

11

comparisons reflecting the enhanced ERP 2005 functionality, Phelps did not identify a single risk

12

associated with implementing the untested ERP 2005 software. Similarly, on or about September

13

17, 2005, Phelps sent Culver an email about ERP 2005 features that arent available in 2004,

14

and explained why ERP 2005 is the way to go. Phelps did not mention any risks associated with

15

becoming a Ramp-Up customer. Meyer from SAP also pitched Ramp-Up to the County,

16

including at the Countys Executive Steering Committee meetings, urging the County to be a first

17

mover in your industry and enjoy dedicated Ramp-Up backoffice and expedited support.

18

71.

Deloitte joined SAP in urging the County to become a Ramp-Up customer,

19

similarly touting the purported benefits while concealing the risks. Specifically, Seidenfeld and

20

Brooks from Deloitte supported Ramp-Up pitches to the County made by Phelps and Meyer from

21

SAP. In or about September 28, 2005, Brooks sent Culver a presentation that Deloitte wanted

22

Culver to use to persuade the Countys Executive Steering Committee to seek Ramp-Up status.

23

Like SAP, Deloitte did not advise the County that a primary Ramp-Up risk was the fact that the

24

Deloitte consultants had no experience with the new ERP 2005 software. In fact, as discussed

25

above, few if any of the Deloitte consultants had any experience with the old ERP 2004 software

26

in the context of SAP for Public Sector software, much less the new ERP 2005 version.

27
28

72.

At precisely the same time that SAP was encouraging the County to license the

new ERP 2005 software, it was acutely aware that the incompetent Deloitte consultants were
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struggling even to properly implement the old ERP 2004 software. In fact, notwithstanding that

SAP had identified severe problems with Deloittes design of the system, completed during the

Projects blueprinting phase involving the ERP 2004 software, SAP nevertheless issued an

optimistic report falsely indicating that the Project was on track.

73.

Specifically, on or about October 10-12, 2005, at the Countys request, SAP

consultants John Fast and Larry Kelley of SAP Public Services Inc. conducted a three day high

level assessment of the initial Blueprint Design for [the County]. In a 16-page report (the

October 2005 Report) memorializing their findings, the SAP consultants sugar-coated the

problems stemming directly from Deloittes deficient design work, deficient methodology,

10

deficient documentation, deficient project management and lack of skilled consultants, and instead

11

concluded -- falsely -- that the project [is] making reasonable progress toward the completion of

12

their blueprint design. Mentioning in passing that the overall system design and integration was

13

so deficient that the County is at risk of an improperly designed system which could lead to

14

substantial rework during the Project or a re-implementation after go live, SAP nevertheless

15

assured the County that the Project was fully on track, and provided a glowing endorsement of

16

Deloittes performance.

17

74.

In the October 2005 Report, SAP should have concluded -- and advised the County

18

-- that even at that early blueprinting stage, the design deficiencies plainly indicated that

19

significant problems were likely to occur following a go-live. SAP should have further advised

20

the County that the only way to manage and mitigate such a risk was to immediately halt the

21

project and, among other things: proceed with a redesign of the blueprint; revise the Project

22

timeline by delaying the go-lives; and overhaul Deloittes project team to ensure that skilled SAP

23

for Public Sector consultants replace the incompetent Deloitte consultants who had botched the

24

blueprinting and incorrectly designed the system. Yet rather than identifying these risks and

25

advising the County how to manage and mitigate them, SAP did just the opposite: it not only

26

provided a positive assessment of the Project and Deloittes performance, but, shortly after the

27

October 2005 Report, enthusiastically gave the County special Ramp-Up status so that it could

28

implement a new, untested software with which Deloittes consultants were wholly unfamiliar.
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1
2

SAPs successful efforts to turn the County into a Ramp-Up customer helped doom the Project.
75.

Ultimately, based upon the Enterprises representations concerning the purported

benefits of ERP 2005 Ramp-Up, the County entered SAPs Ramp-Up program in late October

2005. Securing the County as a Ramp-Up customer not only guaranteed the SAP Defendants a

separate contract for new licensing fees and additional fees for on-site SAP consultants, but

something more critical to the Enterprise: a trial-and-error training ground for the Deloitte

consultants to gain exposure to the new ERP 2005 software, so that Deloitte could market it to

prospective public sector clients.

76.

For the Enterprise, turning the Countys Project into a Ramp-Up situation was a

10

valuable development, as (i) the County was a relatively small public sector entity, and therefore a

11

useful testing ground for in the event that, as was inevitable, Deloittes inexperience with the new

12

software (aggravated by its inexperience with the old software) gave rise to system problems; (ii)

13

based on its County-related experience with ERP 2005, Deloitte could market itself to potential

14

public sector clients as having been the integrator for the first ERP 2005 SAP for Public Sector

15

implementation; (iii) SAP could create market demand for the new ERP 2005 software by

16

assuring potential customers that they need not worry about a lack of experienced consultants

17

because Deloitte, in light of the Countys Project, was an experienced ERP 2005 SAP for Public

18

Sector integrator; and (iv) both SAP and Deloitte could use the County (or, more specifically,

19

defendant Culver) as a reference client to tout the new ERP 2005 software and Deloittes

20

purported experience with that software. In fact, Meyer from SAP contacted defendant Culver on

21

or about September 29, 2005 asking him to be a reference for the City of Richmond, which was

22

considering becoming an SAP Ramp-Up client.

23

77.

Notably, it was not merely Deloitte that needed the training and experience in the

24

new ERP 2005 software. Hillary, the on-site SAP consultant assigned to serve as the Countys

25

SAP Ramp-Up coach, lacked the requisite skills and experience with ERP 2004 SAP for Public

26

Sector software, much less the new ERP 2005 version. On one occasion, for example, Hillary

27

insisted that the County implement a multi-year budgeting process simply because that process

28

was used on her prior project (for a water department), while ignoring that the County did not
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engage in multi-year budgeting, and that such a process would have been complex, unnecessary

and costly. Hillarys proposal was ultimately pushed aside only after significant skepticism and

pushback from County employees, including Hillman, the County Project manager.
d.

4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

78.

The Enterprises Campaign Of Misrepresentation And Concealment


During the Project

By the fall of 2005, the Project fell further behind schedule and the Deloitte

consultants struggled to complete the design of the financial system in order to meet the scheduled
Release I go-live date. Although the County did not know it at the time -- particularly given the
Enterprises repeated assurances that the Project was on track -- the functional specifications and
design documents prepared by the Deloitte consultants were incomplete, deficient and poorly
designed. The configuration decisions of Deloittes consultants were likewise deficient and
flawed. Deloittes design, programming and configuration failures were attributable directly to its
consultants lack of SAP and public sector skills, their unfamiliarity with the SAP for Public
Sector product and functionality and their ignorance of, and failure to employ, SAP for Public
Sector best practices.
79.

The Enterprise knew that the inexperienced consultant team Deloitte assigned to

the Project was incapable of delivering a successful implementation, yet continued to reassure the
County that Project risks were being managed and that the Release I go-live should proceed as
scheduled. Yet, at no point during the Project, did either Deloitte or the SAP Defendants take any
action to remedy, or alert the County to, Deloittes deficient work on the Project, even when both
knew that the inexperienced Deloitte team posed a grave risk to the Project and would cause
serious harm to the County.
80.

In or about January 2006, County Project manager Hillman raised concerns about

the Deloitte Project teams capabilities with SAP consultant Hans Christian Metz (Metz). Metz
was not staffed on the Project, but was familiar to Hillman because he had conducted the basic
SAP boot camp training programs for County Project team members in 2005.
81.

Hillman turned to Metz for advice because she lacked the SAP experience to

adequately assess and, if appropriate, challenge Project implementation decisions being made by
on-site SAP consultant, Hillary, and Deloitte manager, Brooks.
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82.

From January through March 2006, Hillman and Metz held regular email and

telephone discussions concerning the Projects status. Hillman sought Metzs opinion about

questionable design decisions that Deloitte and the SAP Defendants were making concerning the

Project, and Metz investigated the decisions within SAP and reported his findings back to

Hillman. Metzs explanations of the decisions and possible alternatives made sense, while

Deloittes did not.

83.

On at least one occasion, Hillmans and Metzs inquiries uncovered that Brooks

and Hillary had not only made incorrect decisions concerning the design of the SAP system

without advising the County, but had also subsequently misrepresented and concealed facts

10
11

concerning the flawed design decisions to hide these mistakes from the County.
84.

When Brooks and Hillary learned that Metz had facilitated Hillmans discovery of

12

incorrect design decisions made by Deloitte and the SAP Defendants, Brooks and Hillary arranged

13

for Metz to be reprimanded by his superiors, in order to silence Metzs criticism of Deloitte and to

14

prevent the County from discovering additional problems with the implementation.

15

85.

On March 10, 2006, Blaney, the SAP America, Inc. engagement manager assigned

16

to the Project, warned Metz not to interfere with the Project. At or around this time period, Metz

17

informed Hillman that he could no longer provide assistance and that he was taking heat for his

18

support.

19

86.

Thereafter, in late March 2006, approximately four months before the Release I go-

20

live, the County requested that SAP assign Metz to review Deloittes work on the Countys funds

21

management (FM) module to ensure that the Project was proceeding on schedule. Not wanting

22

to deny the Countys request lest it appear uncooperative, SAP -- which had repeatedly guaranteed

23

that the County would enjoy special access to leading SAP resources -- permitted Metz to

24

conduct a limited, one-day review on or about March 31, 2006.

25

87.

During his review, Metz discovered that Deloitte had failed to activate a critical

26

switch, known as the Period Based Encumbrance Tracking (PBET) switch, in the SAP for

27

Public Sector software, without which the system would be unable to perform a year-end close of

28

the Countys financial statements.


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88.

After discovering Deloittes blunder, Metz asked Patel why the crucial switch had

not been activated. Metz was particularly concerned about Patels failure to activate the switch

because, during the SAP for Public Sector boot camp, Metz had specifically instructed Patel about

the importance of activating this switch. Patel responded by claiming that the County had

requested the switch be deactivated because deactivation made testing of the SAP system quicker

and easier.

89.

Patels statement was false, as no County Project team member had ever made such

a request. Rather, Patel deactivated the switch to enable less rigorous testing of the SAP system

and mask severe deficiencies with Deloittes design of the FM module so that the County could be

10
11

deceived into agreeing to proceed with the Release I go-live.


90.

Although Metzs review was intended to be limited to Deloittes design of the FM

12

module, in the short time he was on-site, Metz also uncovered gross deficiencies in Deloittes set-

13

up of the Fixed Assets module. Metz documented the problems he found with Deloittes work in

14

an 11-page report (the Solution Review), which he submitted to his superiors at SAP on or about

15

April 3, 2006.

16
17
18

91.

On or about April 17, 2006, after the SAP Defendants made several rounds of edits

to the Solution Review, they released it to the County.


92.

On or about May 12, 2006, Brooks, at the Countys request, responded to the

19

problems highlighted by the Solution Review. In his response, which was sent by e-mail to

20

Culver and copied to Deloitte director Seidenfeld, Brooks intentionally misrepresented and

21

minimized the depth and extent of the problems identified by Metz.

22

93.

Deloitte further failed to remedy the gross deficiencies in its set-up of the Fixed

23

Assets module, which ultimately resulted in serious problems with the Countys financial

24

management processes after the Release I go-live.

25

94.

Instead of following Metzs recommendations and encouraging his continued

26

participation in the Project, on or around May 2006, Brooks arranged a conference call with Metz

27

and Phelps, during which Brooks and Phelps ordered Metz to cease all communication with the

28

County concerning the Project.


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95.

During the call, Metz tried to explain to Brooks and Phelps that there were serious

deficiencies in the implementation work that required correction before the County could go live

with Release I. Metz warned that Deloitte and the SAP Defendants should advise the County to

stop, or at the very least delay, the Project timetable to allow for remediation work and further

testing of the system. Thereafter, Brooks and Phelps intentionally withheld Metzs admonition

from the County.

96.

From that point on, as his e-mail correspondence reflects, Brooks kept careful

watch over Metz in an effort to ensure that Metz did not raise issues with the Enterprises

performance or interfere with the Release I go-live date.

10

97.

Despite having been made aware of serious defects with Deloittes design of the

11

SAP system, the Enterprise failed to alert County officials to the severe problems that would ensue

12

upon the Release I go-live. Instead, Brooks and Seidenfeld had a full steam ahead policy and

13

recommended to Hymel that the County proceed with the Release I go-live as originally scheduled

14

and falsely assured Hymel that the SAP system was able to operate the Countys financial

15

processes.

16

98.

In fact, in the period leading up to the go-lives, Deloitte engaged in a practice of

17

deliberate under-testing to ensure that system defects did not come to light prior to the go-lives.

18

Deloitte failed to test negative scenarios and the kind and quantity of transactions necessary to

19

confirm that the system, as designed and configured by Deloitte, could meet the Countys complex

20

requirements. Instead, Deloitte conducted truncated, simplistic and incomplete tests that were

21

intended to produce positive results to create the false impression, prior to the go-lives, that the

22

SAP system was in fact ready for production.

23

99.

Deloittes failure to conduct appropriate testing was deliberately intended to: (i)

24

conceal its lack of SAP for Public Sector skills; and (ii) ensure that the County would proceed

25

with the go-lives on the scheduled dates so that Deloitte could collect its fees. Specifically, the

26

ISA provided that each invoice for services would be subject to a ten percent holdback amount,

27

which would come due after the respective go-live dates. Deloitte was not entitled to the holdback

28

fees unless and until the system went live.


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100.

The Enterprise knew that Deloittes inexperienced implementation team, which was

deliberately under-testing Deloittes design specifications, was incapable of delivering a

successful implementation. Despite this knowledge, the Enterprise continued to reassure the

County that Project risks were being managed and that the Release I and II go-lives should

proceed as scheduled. At no point during the Project did any member of the Enterprise take any

action to remedy, or alert the County to, Deloittes deficient work on the Project, even when the

Enterprise knew that the inexperienced Deloitte team posed a grave risk to the Project and would

result in serious harm to the County.

101.

In fact, Hymel, the County Supervisor, repeatedly sought assurances from Brooks

10

and Seidenfeld throughout the testing phase, and especially as the go-live date approached, that the

11

system was ready to go live. Hymel was particularly concerned that the system would be able to

12

reconcile cash, one of the Countys critical business requirements. Brooks and Seidenfeld

13

repeatedly assured Hymel that the system was ready to go live. At one meeting, over lunch,

14

Hymel pressed Brooks on the go / no-go decision -- i.e., based on the testing results, Hymel

15

wanted to know whether the new SAP system able to meet the Countys business requirements

16

and functional needs. Brooks represented that the system was ready to go live. When asked,

17

point-blank, whether the system would be ready to reconcile cash, Brooks unequivocally assured

18

Hymel that it could. Brooks statements to Hymel were false because, as Brooks knew at the time

19

he made them, the system was not ready to go live and could not reconcile cash.

20
21
22

102.

Relying on Brooks and Seidenfelds misrepresentations, Hymel authorized the

Release I go-live.
103.

Deloitte and the SAP Defendants unlawfully conspired with each other and others

23

and agreed to intentionally conceal these deficiencies. Through fraudulent misrepresentations,

24

they convinced the County that the Project could and should proceed on schedule, in order to

25

ensure that Deloitte collected its contract fees and the SAP Defendants secured the prospect of

26

perpetual licensing, support and maintenance fees.

27
28

104.

The Enterprise intentionally concealed these problems and risks so that they

remained hidden from the County until after the SAP system, defectively designed and
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implemented, went live, by which time Deloitte have already received substantial payment for its

defective work, and SAP had received licensing fees for the SAP for Public Sector software.
e.

3
4

105.

The Failure Of The Release I Go-Live

On July 3, 2006, the Countys core financial operations went live on SAP. Almost

immediately, the new SAP system began experiencing significant cash reconciliation and financial

posting issues, and was unable to accurately account for and track the Countys flow of funds.

106.

As a result of these cash-reconciliation and posting issues -- and Deloittes failure

to properly design the Countys chart of accounts -- the County lacked even the most basic

financial reporting capabilities. In fact, the County could not rely on the new SAP system to

10

produce a simple balance sheet, much less required federal and state year-end financial reports.

11

107.

Unable to use the SAP system to perform its month-end or year-end closings, the

12

County was forced to perform such essential financial operations manually. It was not until

13

November 2008 -- nearly a year and a half after the Countys fiscal year ended -- that the financial

14

statements for the fiscal year ended June 30, 2007 were in a condition for the Countys external

15

auditors to begin their audit. Those audited financial statements were not issued until April 21,

16

2009.

17

108.

The inability of the SAP system to produce financial statements also jeopardized

18

the Countys relationships with its vendors, auditors, bond rating agencies, banks and others in the

19

financial markets, and placed the County at risk in connection with borrowing rates and debt

20

issuances.

21

109.

Other critical pieces of required functionality missing from the SAP system after

22

the Release I go-live included 1099 tax reporting functionality (which Deloitte simply failed to

23

configure) and grant management (notwithstanding the Countys repeated requests, Deloitte failed

24

to assign any consultants to the Project with the appropriate experience to implement the SAP

25

Grant Management module).

26

110.

In addition to these core deficiencies, other problems with the SAP system which

27

followed the Release I go-live included: (a) an improperly designed general ledger account

28

structure, which impaired the Countys ability to manage its cash; (b) missing positive pay
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functionality, which impaired the Countys ability to guard against fraudulent check cashing; (c)

an incorrect configuration of the Fixed Assets module, which led to incorrect posting of

depreciation entries and impaired the Countys ability to perform fixed asset accounting; (d) an

incorrect configuration of the Controlling module, which impaired the Countys ability to provide

critical operational data to County management; (e) missing required treasury functionality,

including the Treasurers Constant application, which prevented the County from performing cash

to fund reconciliations; (f) incomplete configuration of the Accounts Payable module; (g) missing

functionality needed to generate billing documents from work orders; (h) missing functionality

necessary to generate W-2 and quarterly taxes; and (i) double posting of inventory. Many of the

10

Release I financial components of the SAP system ultimately had to be re-designed and re-

11

implemented after Deloittes departure from the Project.


f.

12
13

111.

Deloitte Recruits Defendant Culver

Rather than focusing on efforts to repair the Countys badly damaged financial

14

management system, Deloitte, through Seidenfeld and Brooks, insisted on moving forward in

15

accordance with the scheduled January 3, 2007 Release II go-live date, which would enable the

16

Enterprise to receive its contractual fees.

17

112.

In light of the problems that ensued following the Release I go-live, Deloitte faced

18

increased scrutiny from County team members who raised questions concerning the failures of

19

Release I. Even though the inexperienced County team members had yet to fully understand the

20

severity and long-term implications of the Release I failures, doubts began to surface as to whether

21

the Release II go-live should proceed as scheduled.

22

113.

When the Enterprise came to realize that it would be difficult, if not impossible, for

23

them to convince the County to proceed with Release II, Deloitte broadened the scope of the

24

Enterprise by recruiting Culver, a County official and, at that time, the Countys Project manager,

25

through bribery.

26

114.

Bribing Culver with promises of employment and expensive dinners, the Enterprise

27

was able to wrongfully use Culver to continue its scheme of concealing Project risks from County

28

officials long enough for the Enterprise to get paid and reap millions of dollars from the failed
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Project. To that end, the Enterprise defrauded the County of its right to receive honest services

from Culver, the Countys lead officer on the Project.


i.

3
4

115.

Culver Joins The Enterprise

Defendant Culver served as the Assistant Auditor-Controller for the County at all

times relevant to the Project implementation and until March 1, 2007. Culver also served as the

Project Director and was the primary interface between the County and Deloitte. As Project

Director, Culver was responsible for approving Deloittes work on the Project. Once Culver

signed off that Deloitte had properly completed a Project Deliverable, Deloitte was able to

receive fees from the County.

10

116.

In or about October 2006, Hymel initiated internal discussions concerning the

11

transfer of control of the Project from the Office of Auditor-Controller, where Culver worked, to

12

the Department of Information Services Technology (IST). This transfer, which occurred on

13

March 1, 2007, eliminated Culvers role and responsibilities on the Project.

14

117.

Culver was angered by the decision to transfer control of the Project, and

15

specifically intended to injure the County based on what Culver perceived as an affront by Hymel

16

to strip control of the Project from him.

17

118.

Culver chronicled his anger with Hymel and the County -- as well as his corrupt

18

dealings with Deloitte -- in contemporaneous writings he kept during the Project. In his writings,

19

Culver referred to the transfer as a power grab that put him over the edge. Days later, Culver

20

wrote that he went out for a drink and got a lot of info about Deloitte from Deloitte manager

21

Mecklenburg because he might as well start working on an exit strategy. His motivation to

22

promote Deloittes interest over those of the County was summed up as follows: the County can

23

take this system and let it fall apart . . . . Its time to move on and focus on what I want.

24

119.

Seizing on Culvers disappointment with the eventual transfer of Project

25

stewardship from his office, Deloitte engaged Culver in the Enterprise, using bribery to influence

26

him to conceal Project risks from the County and promote Deloittes interests to the Countys

27

detriment.

28

120.

On or about November 3, 2006, Mecklenburg sent Culver an e-mail invitation to


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dinner at Masas, a premier San Francisco restaurant. At the time Mecklenburg invited Culver to

dinner, she was aware of Culvers mounting disaffection with the County and his interest in

working for a private-sector software consulting firm, such as Deloitte.

121.

Culver accepted the dinner invitation and, on or about November 9, 2006,

Mecklenburg and Culver, joined by Brooks, dined at Masas. Culver described the dinner as

follows: . . . finally the day ended great with a dinner at Masa [sic] with Steve and Kirsten. After

a really hard day, it was a great finish. 5 hours, $200 each!

8
9
10
11

122.

As a County official, Culver had a duty to notify the County of this gift, yet he

concealed that fact, and continued with his responsibilities as the Project Director, despite this
conflict of interest. In fact, Culver never disclosed this, or any future dinner, to the County.
123.

In or about December 2006, Phelps asked Culver to again act as a reference for

12

SAP, this time by speaking to officials in Jefferson County, Alabama. Culver and Brooks had a

13

lengthy call with the Alabama officials. At precisely the same time that Culver was serving as an

14

SAP reference, promoting SAP in order to assist Brooks, Phelps and SAP in SAPs Jefferson

15

County bid, Culver was contemporaneously describing the Project as a shopping cart careening

16

down the hill.

17

124.

As reported in the media, SAP ultimately landed Jefferson Countys Public Sector

18

project, but the $12 million implementation was a failure. Jefferson County is now considering

19

pulling the SAP system, cutting its losses and releasing itself from what analysts have

20

characterized as a staggering $2.5 million in annual SAP maintenance fees. During the

21

remainder of the Project, at the SAP Defendants request, Culver continued to serve as a reference

22

for other potential SAP for Public Sector customers.

23

125.

One month after the $600 dinner at Masas, on or about December 7, 2006, Culver

24

spent over an hour speaking with Deloitte director and partner Chiominto about the possibility of

25

working for Deloitte. Chiominto was the Quality Assurance partner assigned by Deloitte to the

26

Project, i.e., the very Deloitte partner responsible for alerting the County to potential and actual

27

Project risks and, where necessary, mitigating and managing those risks. Culver recorded the

28

meeting with Chiominto as follows:


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1
2
3
4
5
6
7
8
9
10

. . . then I spent 1 hours with Nick Chimento [sic] from Deloitte. We discussed
the project status and I asked him about working for Deloitte. He thought I would
be an excellent fit and he spent some time telling me about the various options.
We left it when I said I would spend some time over the next few weeks thinking
about what I am interested in.
126.

Several weeks later, on Friday, December 22, 2006, following up on Chiomintos

discussion with Culver described above, Mecklenburg advised Culver of an available position at
Deloitte. Culver summarized the discussion as follows:
Then I talked to Kirsten about my conversation with Nick. She also said the SRM
[Strategic Relationship Manager] position was right for me, and not only that, the
SRM position in San Francisco is available, and not only that, Nick supports me
and thinks that would be a great position for me! Wow, that really made my day
and I spent the evening researching SRM rather than resting my brain. Its
exciting.

11
127.

When Culver returned to work after that weekend, Mecklenburg obtained Culvers

12
sign-off approval for various work that Deloitte had failed to properly perform. Such work
13
included tasks that Brooks and Mecklenburg falsely claimed Deloitte had properly performed.
14
128.

In fact, on or about December 21, 26 and 28, 2006, Mecklenburg and/or Brooks

15
succeeded in getting Culver to sign off on nearly one-third of the Project Deliverable Approval
16
Forms (the Deliverables), each representing discrete work product that Deloitte was supposed to
17
have completed at various phases during the course of the Project.
18
129.

Much of the work described in these Deliverables had been purportedly completed

19
by Deloitte for more than one year. Yet Brooks and Mecklenburg presented these Deliverables to
20
Culver as the Project was drawing to an end because they knew that Culver would approve them,
21
irrespective of whether the Deliverables had in fact been properly performed, in exchange for past
22
and future material benefits offered by Deloitte to Culver. As described by Culver, he participated
23
in Deloittes efforts to get [the Deliverables] all ticked and tied in order to wrap up the project.
24
130.

Indeed, Culver signed no fewer than 15 Deliverables during this week-long period.

25
With the signature of each Deliverable, Culver represented to the County and the public, as stated
26
in the ISA, that: (i) such Deliverable contains no material errors or defects; (ii) such Deliverable
27
meets or fulfills, in all material aspects, the Acceptance Criteria, and (iii) all training and other
28
Services required by this Agreement in connection with the provision of such Deliverable have
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been completed in all material aspects. . . . However, at the time he signed these documents, not

only was Culver conflicted, but he knew that the representations he was making were false and

that the work described in the Deliverables had been sub-standard, delinquent, deficient and

incomplete. Indeed, at this point in time, Culver, as the Countys Project Manager, was acutely

aware of the extent of the system defects, which he knew were caused by Deloittes deficient

design and functional specification work.

131.

On the Countys Project (as on all public sector SAP projects), the integrity of the

sign-off process necessarily depended on the objective, good-faith assessment by the County

project manager, Culver, that the integrator, Deloitte, had in fact performed the work it purported

10

to perform and for which it was seeking fees. This is because the County had delegated to Culver

11

the responsibility of exercising conflict-free judgment in evaluating and determining whether it

12

was appropriate to approve Deloittes work by signing off on the Deliverables. Once Culver

13

executed the Deliverable sign-off, the accounting department would, as a ministerial matter, tender

14

payment to Deloitte. Here, far from exercising such conflict-free judgment, Culver was being

15

feted by Deloitte at the same time that he was signing the below Deliverables, and was approving

16

work by Deloitte that he knew, or was reckless in not knowing, was defective or, at a minimum,

17

did not comply with the requirements of the ISA.

18

132.

Such Deliverables included:

19

(a)

DED12 (Business Blueprint) purportedly completed in October 2006;

20

(b)

DED13 (Functional Specifications) purportedly completed in October

21
22

2006;
(c)

DED19 (Development Objects);

(d)

DED22 (Integration Test and Cutover Plan) purportedly completed in

23
24

June 2006;

25
26

(e)

DED24 (Completed System Testing) purportedly completed in July 2006;

27

(f)

DED26 (Executed Cutover) purportedly completed in July 2006;

28

(g)

DED33 (Project Scope) purportedly completed in January 2006;


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(h)

1
2

DED35 (Project Team Training Plan and Initial Training) purportedly


completed in March 2006;

3
4

(i)

DED36 (Stakeholder Analysis) purportedly completed in June 2006;

(j)

DED38 (Functional Specifications) purportedly completed in July 2006;

(k)

DED41 (Role-to-Position Mapping) purportedly completed in October

5
6

2006.

7
8
9

133.

Additionally, Culver approved Deliverables during this time period that, as the

Project Director, he knew did not fulfill requirements set out in the ISA. Specifically, all

10

Deliverables were required to include reasonably detailed documentation on all portions of the

11

System as implemented during such Release that is sufficient to enable the County to use, operate,

12

and maintain the System (to the extent then implemented) in the Countys environment and that

13

otherwise meets the requirements of this Agreement.

14
15

134.

The Deliverables that lacked sufficient documentation pursuant to the ISA, that

Culver nonetheless approved, included:


(a)

16

DED07 (Change Readiness Assessment) only the Deliverable Approval


Form was submitted, but there was no underlying documentation;

17
(b)

18

DED09 (Strategic Change Plan) only the Deliverable Approval Form

19

and a two-page word document describing the approach for developing the

20

Strategic Change Plan was submitted, but there was no other underlying

21

documentation; and
(c)

22

Form was submitted, but there was no underlying documentation.

23
24

DED28 (Converted Beginning Balances) only the Deliverable Approval

135.

In addition to the sham sign-offs, Culver also made oral misrepresentations to

25

County officials concerning the status of the Project, to induce the County to proceed with the

26

Release II go-live. For example, on or about December 29, 2006, despite describing the day as

27

hell in his contemporaneous Project-related writings, Culver told Hymel that generally things

28

were going well.


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ii.

1
2

136.

Failure Of The Release II Go-Live

In reliance on Culvers written and oral misrepresentations concerning the status of

the implementation, as well as similar misrepresentations made by Brooks and Seidenfeld to

Hymel and other County officials, the County proceeded with the Release II go-live as scheduled.

137.

Within hours after the Release II go-live, the SAP system began to fail. Payroll

discrepancies were especially crippling, as the Countys payroll error rate increased five-fold on

the SAP system, compared to the Countys legacy systems. Payroll problems became so severe

that the County was unable to rely on the SAP system for its payroll functions and had to perform

much of the work manually.

10

138.

Major defects and problems with the Release II components of the SAP system

11

included, among others: (a) incorrect calculation of County employee pay, including both

12

underpayments and overpayments; (b) incorrect calculation of retirement benefits, including

13

underpayments, overpayments and, in some cases, failure to make any payments; (c) inability to

14

generate crucial payroll and HR reporting; and (d) deficiencies with time-sheet reporting

15

functionality, which enabled employees to record time worked in excess of the standard working

16

day.

17

139.

After the defective and malfunctioning SAP system went live and the County was

18

unable to use the system to operate its core processes, Deloitte and the SAP Defendants offered to

19

provide costly post-production support to address the problems plaguing the SAP system --

20

problems stemming directly from Deloittes failure in the first instance to provide the County with

21

skilled consultants with the requisite SAP and public-sector experience.

22

iii.

23
24
25
26
27
28

140.

The Enterprise Continues To Bribe Culver In Order To Collect


Post-Implementation Fees

After the disastrous Release II go-live, and as part of the Enterprises efforts to gain

post-implementation fees, Deloitte continued to obtain Culvers approval of Project Deliverables.


Culvers approval was essential for Deloitte to obtain its fully contracted fees, which were subject
to a ten percent holdback amount absent the Countys final acceptance.
141.

Moreover, Deloitte knew that each Deliverable it was able to influence Culver to

sign would strengthen a future argument that responsibility for any problems with the SAP system
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rested with the County since all of Deloittes deliverables were approved before its work on the

Project ended. In this way, these sign-off approvals provided Deloitte with an insurance

policy, which insulated it from liability if the County ever became aware of the Enterprises

fraudulent scheme. For his part, Culver was eager to sign the Deliverables for Deloitte in

exchange for the lucrative private-sector job with Deloitte that was being dangled before him by

Brooks, Mecklenburg and Chiominto, among other Deloitte executives.

142.

In addition to approving all of the Deliverables that Deloitte presented to him,

Culver also readily approved new contracts for prospective Project work (Change Orders) and

Project invoices for the purpose of ensuring that the Enterprises fraudulent scheme continued to

10
11

generate still more fees.


143.

On or about January 4, 2007, one day after the catastrophic Release II go-live and

12

at the same time that many of the deficiencies with the SAP system were beginning to surface,

13

Brooks and Mecklenburg once again invited Culver, via e-mail, to a lavish dinner in San

14

Francisco, at the premier San Francisco restaurant Gary Danko.

15

144.

After Culver accepted the invitation, on or about January 12, 2007, Brooks and

16

Mecklenburg treated him to the lavish dinner. Brooks flew in from Los Angeles for this dinner,

17

which lasted four hours, and returned to Los Angeles shortly after it concluded. Culver noted the

18

dinner in his writings:

19
20
21
22

Steve and Kirsten and I will go to dinner tonight, and Steve will fly up just for
that. . . . Dinner was at Gary Denko [sic], a high class restaurant in San Francisco.
We ate for 4 hours. Poor [S]teve got to bed at 1am and had to get up at 4am for a
flight back to Los Angeles.
145.

Once again, despite a duty to do so, Culver failed to disclose this dinner to the

23

County, concealing the material fact that he was conflicted from entering into contracts with

24

Deloitte on behalf of the County.

25

146.

Following that dinner, on or about January 15, 2007, Deloitte director Vaught

26

obtained Culvers signature on a Change Order, requiring the performance of additional work by

27

Deloitte and the payment of additional fees by the County.

28

147.

Approximately nine days later, on or about January 24, 2007, Culver and
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Chiominto spoke by phone about Culvers interest in working for Deloitte. That same day, Culver

authorized the payment of various Deloitte invoices.

3
4
5

148.

On or about January 25, 2007, Culver was invited to and attended another dinner

in San Francisco hosted by Brooks and Mecklenburg, followed by drinks at a bar.


149.

The next day, on January 26, 2007, Mecklenburg obtained four more sign-offs from

Culver, approving, on behalf of the County, additional defective and incomplete work product by

Deloitte -- work that Culver knew had not been properly performed, but nevertheless approved in

exchange for the bribes given and/or promised by Deloitte:


(a)

9
10

DED29 (Production Support Issue Log) purportedly completed in July


2006;

11
12

(b)

DED37 (Business Blueprint) purportedly completed May 2006;

(c)

DED45 (Integration Test, Payroll Parallel Test and Cutover Plan)

13
purportedly completed November 2006; and

14
(d)

15

2007.

16
17

DED51 (Production Support Issue Log) purportedly completed in January

150.

That same evening, after Deloitte had obtained Culvers signature on the additional

18

Deliverables, Chiominto called Culver by telephone and requested Culvers resume, promising to

19

put Culver in touch with the appropriate people in Deloittes San Francisco office. Culver

20

described the phone call as follows:

21
22
23
24
25
26
27
28

I went home about that time and Nick Chiomento [sic] called. He wants a resume
from me, and then hell have me talk to the appropriate people at the head of the
Bay Area SRM practice. Pretty exciting.
151.

On or about January 29, 2007, despite his ongoing conflict of interest, Culver

approved contracts on behalf of the County to retain SAP fund management and inventory
consultants.
152.

On or about February 13, 2007, Chiominto advised Culver, via e-mail, that he had

arranged an interview for Culver with an important Deloitte official. Culver recounted hearing the
news from Chiominto:
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1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

I received an email from Nick saying that I could come in for an interview with
Deloitte SRM, which made me very happy. I didnt know rightaway [sic] with
whom, but I found out a couple of days later it is with Carlo Grifone, the top
northern California guy, and head of the [sic] client services for State of
California.
153.

Two days after Culver received news of his interview, on or about February 15,

2007, Vaught obtained Culvers signature on another Change Order.


154.

On or about February 21, 2007, Vaught prepared Culver for his interview with

Grifone.
155.

On or about February 26, 2007, Grifone interviewed Culver for a position at

Deloitte. The following day, Culver had a conversation with Brooks concerning Deloittes
managerial salary structure.
156.

On or about March 1, 2007, responsibility for the Project was officially transferred

from Culver to the Countys IST department and the IST departments director, David Hill
(Hill).
157.

On or about March 16, 2007, Deloitte manager Anderson invited Culver via e-mail

to lunch, at a location of Culvers choice, with Anderson and Vaught. Culver attended the lunch
with Anderson and Vaught on or about March 20, 2007.
158.

Beginning in or around April 2007, the SAP Defendants engaged Culver in

discussions concerning future employment for Culver at SAP. At the same time that these
discussions were taking place, Deloitte was seeking Culvers approval of its deficient work, and
Deloitte and the SAP Defendants were seeking Culvers assistance in getting their invoices paid
and obligating the County to pay them still more fees.
159.

On or about April 9, 2007, Vaught asked Culver, via e-mail, to review outstanding

Deloitte invoices, so that Culver could assist Deloitte in procuring payment from the County.
Culver agreed to assist in this effort even though -- as Deloitte was aware -- he was no longer the
Project Director. In his writings, Culver described Vaughts conduct on the Project during the
month of April as going nuts, trying to get paid.
160.

In or about April 2007, in the midst of lavish dinners and talk of prospective

employment, Culver deceived Hymel, County Auditor-Controller Richard Arrow and the new
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Project Director Hill into seeking BOS approval to enlarge the Projects budget. Culver advocated

for the approval of nearly $3 million in additional consulting fees for Deloitte and SAP Public

Services, Inc., for services that Culver knew had been improperly performed, would be improperly

performed or not performed at all. Although Hymel didnt want to provide the funding necessary

to keep Deloitte on the Project, Hymel finally relented after being induced to do so by Culvers

intentional misrepresentations concerning Deloittes and the SAP Defendants past performance

on the Project.

161.

On or about April 17, 2007, as a direct result of Culvers efforts, Hill and Arrow

submitted a letter to the BOS, requesting the approval of the additional $3 million. Culver made

10

substantial edits to the letter in order to minimize Deloittes shortcomings. Specifically, Culver

11

deleted language that candidly discussed the problems with the Project. As originally drafted, the

12

letter stated, [h]owever, as with all software implementations . . . there have been problems with

13

Marins implementation of SAP. These problems are so significant that they need to be resolved

14

before the system can be considered fully functional as originally planned. For the last several

15

months, the [ ] [P]roject has struggled trying to resolve problems resulting from insufficient

16

training, software defects and incomplete software customization. Aware of such problems,

17

Culver nonetheless edited the letter to state, [h]owever, as with all software implementations . . .

18

there are numerous changes and corrections needed to the system. For the last several months, the

19

[ ] team has been working to resolve issues as they are identified.

20
21
22
23
24
25
26

162.

The BOS approved the budge increase on or about May 1, 2007 in a contractual

amendment to the ISA.


163.

While the BOS approval was in process, Culver vividly described the crippling

problems that plagued the Project as a result of Deloittes deficient work. He wrote:
Plenty of problems have surfaced, especially since I brought Gopi [external
consultant Chandra Gopisetty] on board. He has found all of the bad payroll
schema design that Deloitte did, and he highlights all the problems that need to be
fixed. There is a big problem where payroll wage types are not properly mapped
to FI and the GL accounts.

27
28

164.

On or about April 19, 2007, Deloitte manager, Anderson, invited Culver, via e39

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mail, to a meeting at which Culver was expected to review and sign-off on Deloittes Project

Deliverables -- nearly two months after Culver was removed from his position as Project Director

on March 1, 2007.

165.

On or about April 20, 2007, to ensure that Deloitte obtained more sham approvals

of its deficient work from Culver, Anderson invited Culver, via e-mail, to a nice dinner, paid for

by Deloitte and authorized by Vaught, during an SAP-related conference in Atlanta, Georgia for

which Deloitte was a co-sponsor. Culver accepted the dinner. Anderson also offered to invite

County Project team member and employee Cathy Boffi to this dinner, but Culver rejected the

offer, responding I dont think we could talk openly if we invited Cathy. Anderson replied I

10

agree and promised to call Culver upon arriving in Atlanta. The dinner took place on or about

11

April 24, 2007.

12

166.

Two days later, on or about April 26, 2007, Anderson obtained Culvers approval

13

on behalf of the County for additional defective Deliverables, purportedly completed by Deloitte.

14

However, since responsibility for the Project had shifted from Culver to Hill on March 1, 2007,

15

Culver was no longer authorized to approve Deloittes Deliverables. The unauthorized

16

Deliverables that Culver signed and thereby misrepresented he had authority to approve included:

17

(a)

DED01 (Project Plan) purportedly completed in June 2005;

18

(b)

DED40 (Configured System) purportedly completed in January 2007;

19

and

20

(c)

DED50 (Tuned System) purportedly completed in February 2007.

21
22
23
24
25
26
27
28

167.

On or about May 1, 2007, Anderson invited Culver, via e-mail, to a dinner with

Anderson and Vaught at a restaurant of Culvers choice -- the very same day that the BOS
approved the additional $3 million in fees for Deloitte and SAP Public Services, Inc.
168.

On or about May 4, 2007, Anderson again invited Culver, via e-mail, to a meeting

in which Culver was expected to review and sign-off on Deloittes Project Deliverables.
169.

On or about May 8, 2007, Anderson obtained Culvers approval on behalf of the

County for additional Deliverables. The unauthorized Deliverables that Culver signed and thereby
misrepresented he had authority to approve, included:
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(a)

2007;

(b)

7
8
9

DED46 (Production Support Plan) purportedly completed in January


2007; and

5
6

DED23 (Production Support Plan) purportedly completed in January

(c)
170.

DED49 (Executed Cutover) purportedly completed in February 2007.

That same evening, Anderson and Vaught took Culver out to dinner at the Buckeye

Roadhouse, an upscale restaurant near Sausalito chosen by Culver.


171.

On or about May 15, 2007, Anderson attempted to convince Deloitte consultant

Cannella to procure sign-offs from County team member and employee Kevin Yeager (Yeager)

10

on various testing of the SAP system that had failed. Deloitte was determined to obtain these

11

sign-offs because the County was demanding completion of this testing as a prerequisite to paying

12

Deloitte its fees. Anderson instructed Cannella via e-mail to pressure Yeager if he was

13

uncooperative.

14

172.

On or about June 5, 2007, Anderson again asked Cannella, via e-mail, to perform

15

the same dishonest task, explicitly suggesting that Cannella leverage [his] relationship with

16

Kevin [Yeager] to facilitate sign-off. Brooks and Vaught were copied on Andersons e-mail.

17

173.

On or about June 19, 2007, because Cannella had been unsuccessful, Anderson

18

took it upon himself to obtain Yeagers approval of the failed SAP system tests. When Yeager

19

refused to sign-off on the tests until they were actually completed, Anderson forwarded Yeagers

20

response to Vaught with the following message: Not the answer we were hoping for. Any

21

thoughts? Vaught instructed Anderson to obtain Culvers approval.

22

174.

On or about June 20, 2007, Anderson obtained Culvers unauthorized approval on

23

behalf of the County for additional Deliverables purportedly completed by Deloitte, including

24

DED30 (Lessons Learned Assessment).

25

175.

On or about June 22, 2007, Anderson invited Culver to another meeting, during

26

which Culver was expected to sign the last remaining Deliverables, followed by lunch with

27

Anderson and Vaught.

28

176.

On or about June 24, 2007, Anderson informed Vaught that Ernest [Culver]
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accepted my invitation to sign the final deliverables. He is also available for lunch afterward.

Vaught responded that he would try to fly in from Utah to attend the lunch.

177.

On or about June 28, 2007, Culver signed the Projects last remaining Deliverables

and then went to the lunch that Anderson had invited him to attend. Included in this batch of sign-

off documents was DED47 (Completed System Testing), which encompassed the defective

Deloitte testing that Yeager had refused to approve.

178.

Overall, Culver approved one-half of Deloittes Deliverables and numerous Project

invoices, either during an approximately two-month period before he lost authority over the

Project, or after he was removed from his position as County Project Director.

10
11
12

179.

On or about May 29, 2007, Culver notified Richard Arnow that he was leaving the

County to pursue an employment opportunity with SAP.


180.

On or about July 6, 2007, soon after Culver had approved his last Deliverable for

13

Deloitte, Culver left the Countys employ and went to work for the SAP Defendants. Culver is

14

presently a Client Services Executive with SAP Public Services, Inc.

15

181.

The Enterprise knew that Culvers misconduct in deceiving the County, and

16

promoting the interests of the Enterprise to the detriment of the County, constituted a fraud, breach

17

of fiduciary duty and breach of duty of loyalty upon the County. Yet the Enterprise encouraged

18

and assisted Culver in engaging in such misconduct to obtain his improper approval of Project

19

Deliverables, invoices and Change Orders so that they could (a) ensure a continued stream of

20

revenue from the County and (b) conceal deficiencies and defects with the SAP system.

21

182.

The Enterprise was further aware that the intended result of Culvers fraudulent

22

conduct and breaches -- which included deceiving the County into proceeding with the Release II

23

go-live by misrepresenting the status of the Project and concealing Project defects and risks --

24

would cause grave injury to the County.

25

B.

The Enterprises Racketeering Against The County Is Consistent With A


Larger Pattern And Practice Of Racketeering Activity

183.

The racketeering scheme that Deloitte and the SAP Defendants perpetrated on the

26
27
28

County is consistent with a pattern and practice of misconduct by Deloitte and the SAP
Defendants on SAP for Public Sector implementation projects involving other governmental
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entities between 2001 and 2008 (the Public Sector Projects). The targets of this scheme have

included the Los Angeles Unified School District (LAUSD), the city of San Antonio, the

Colorado Department of Transportation (C-DOT) and Miami-Dade County Public Schools (M-

DCPS). On each of these Public Sector Projects, Deloitte was the project integrator

implementing SAP for Public Sector software. While not all details are readily accessible,

available information regarding these implementations reveals a repeated story of

misrepresentation, deficient work, questionable ethics and disastrous results. On information and

belief, each project was precipitated by misrepresentations and concealment by Deloitte and SAP

to their prospective clients concerning the skills and commitment of Deloitte and SAP.

10

184.

On information and belief, based upon publicly available information and records,

11

each Public-Sector Project was secured through misrepresentations from the Enterprise regarding

12

Deloittes implementation capabilities. Additional non-public information is unavailable to the

13

County because it is in the possession of either the defendants or the other public-sector victims

14

who are not subject to judicial process at this time.


a.

15
16

185.

The Los Angeles Unified School District Implementation

In May 2003, Los Angeles Unified School District (LAUSD), the nations

17

second-largest school system, voted to implement ERP software to upgrade its payroll, human

18

resources and procurement system.

19

186.

The following spring, LAUSDs technology committee issued an RFP for ERP

20

software, drawing five bidders, including SAP Public Services, Inc. Although then-existing

21

California law required that technology contracts be awarded to the lowest bidder -- which SAP

22

was not -- LAUSD nonetheless selected SAP for Public Sector Software. A separate RFP was

23

issued for implementation services and, in late 2004, the committee selected Deloitte Consulting.

24

187.

At the time, both SAP and LAUSD were represented in Sacramento by the

25

lobbying firm Rose & Kindel. Although the firm claimed that it never leveraged its relationship

26

with LAUSD on behalf of SAP, while SAPs contract was being prepared for approval by the

27

LAUSD board, Rose & Kindel was at work in Sacramento pushing AB 532, a bill that would

28

allow LAUSD to waive procurement rules and select a non-lowest technology bidder -- i.e., SAP.
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The bill was signed on October 4, 2005 and, later that day, SAP announced the LAUSD contract,

even though it had been executed months earlier. SAP and Deloitte also both registered with

LAUSD as clients of lobbyist Mary Leslie, a Los Angeles business leader with ties to LAUSD

Superintendent Roy Romer. In 2006, the Daily News of Los Angeles criticized the anything goes

ethics rules surrounding the procurement.

188.

On April 12, 2005, the LAUSD School Board voted to approve an $11 million

software contract with SAP Public Services, Inc. A representative from Deloitte -- but none from

SAP -- was present at the meeting and responded to questions regarding the proposed contract.

189.

On June 14, the Board approved a $55 million implementation contract with

10

Deloitte. One month later, in July 2005, LAUSD Inspector General Don Mullinax -- the district

11

official with oversight over contracts and procurement -- took a job at Deloitte Financial Advisory

12

Services.

13

190.

The SAP and Deloitte contracts were designed so that the two companies would

14

work in concert. Under the contracts, the Executive Steering Committee for the project included

15

representatives from SAP and Deloitte. Further, the contracts made SAP an implementation

16

subcontractor of Deloitte. Both Deloitte and SAP representatives spoke at project update meetings

17

before LAUSDs technology committee.

18

191.

The LAUSD SAP system went live in January 2007, to immediate disaster. The

19

payroll system generated wildly inaccurate paychecks. Over 10,000 employees failed to receive

20

scheduled paychecks; hundreds received no pay for months. Another 35,000 employees were

21

overpaid by approximately $60 million. While some teachers spent days camped out at district

22

headquarters, county administrator worked overtime to reconcile district payroll by hand.

23

192.

As reported in the Contra Costa Times on February 15, 2007, school board member

24

David Tokofsky stated that Deloitte was awarded the contract based on representations concerning

25

the firms familiarity with SAP implementation. In a November 27, 2008 article in the Los

26

Angeles Times, Tokofsky added that, although Deloitte outbid IBM and its subcontractors, the

27

company sent their C players instead of their A or B players to implement this. Ironically,

28

LAUSD was eventually forced to hire IBM to fix Deloittes mistakes.


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193.

In 2010, the Los Angeles County Civil Grand Jury (CGJ) issued a report on its

investigation of the LAUSD SAP debacle. The CGJ could not understand the failure to test all

major issues prior to go-live, noting that simulated payroll runs had not been performed and

matched to existing payrolls, and that such tests could have been performed for a limited number

of employees for at least one of the schools prior to going live. As a February 8, 2008 editorial in

the Los Angeles Times stated, [g]iven the rocky history of the SAP/Deloitte combo, it was

unconscionable to turn on the SAP system without a full-scale test run, even after the school

board had expressed doubts. That was nothing short of arrogance.

194.

The CGJ was also concerned that SAP training for payroll personnel was not

10

completed until late 2009. Summarizing internal LAUSD audits, the CGJ concluded that key

11

controls were not designed nor operating effectively, SAP did not effectively support these

12

processes, and policies and procedures related to these processes were not formalized or updated.

13

195.

The fiasco cost LAUSD between $25 million and $55 million, in addition to the

14

$60 million already paid to Deloitte and SAP. Deloitte managed to avoid litigation, however, by

15

settling with LAUSD for $8.25 million and $10 million in unpaid invoicesan amount that many

16

in the Los Angeles community found far too low.


b.

17
18

196.

The City of San Antonio Implementation

On May 31, 2001, the City of San Antonio voted to approve a multi-phase contract

19

with Deloitte to assist in the selection and implementation of a comprehensive ERP system.

20

Deloittes responsibilities included assisting in the definition, evaluation, and selection of the

21

ERP software that would be used on the project.

22

197.

On June 20, 2002, the San Antonio City Council approved a $4 million contract

23

with SAP Public Services, Inc. to provide ERP software, and a $48 million contract with Deloitte

24

to implement that software. As reflected in the minutes of the June 20 meeting, an SAP Public

25

Services representative spoke of SAPs commitment to the City and success [of] this project.

26

198.

Unfortunately for San Antonio, despite SAPs purported commitment, the project

27

was, as one analyst put it, another situation where a municipality has been duped into thinking

28

these massive upgrades are easy, and lo and behold, they find out theyre not. As reported in the
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San Antonio Express-News on January 23, 2005, within weeks of startup, the system

shortchanged paychecks for hundreds of police officers, interrupted permits for builders and held

up subsidies to child care centers. The article added that about 1,000 employees had some type

of mistake in their checks. Workers were underpaid, overpaid and not paid at all. San Antonio

was not able to close its monthly financial ledgers or post revenues and expenses to proper

departments. Teddy Stewart, the president of the San Antonio Police Officers Association,

described the new SAP system as a nightmare.

8
9

199.

According to a former SAP employee, one problem with the San Antonio

implementation resulted from Deloittes failure, prior to the go-live, to switch on the same PBET

10

switch in the SAP for Public Sector software funds management module that Deloitte had failed to

11

activate on the Countys Project. Thus, as on the Countys Project, Deloittes failure to activate

12

the PBET switch on the San Antonio implementation enabled it to run less rigorous testing

13

scenarios prior to the San Antonio go-live (and thereby conceal problems that would otherwise

14

have come to light), with the result that, post go-live, the system was unable to properly perform a

15

year-end fiscal close of San Antonios finances.

16

200.

An August 6, 2003 audit of the project by KPMG named other issues, including

17

delays that resulted in contractor resources being rolled off of the project making them

18

potentially unavailable to meet future project commitments. KPMG also found that [a]lthough

19

[Deloitte] performs internally focused risk management reviews, a formal project risk

20

management function focusing on the City and the overall project risk was not observed.

21

201.

A follow-up KPMG audit dated November 4, 2004 found, among other issues,

22

[c]ompression of project activities just before Go-Live; [t]urnover in key positions on the

23

project team; [i]nconsistent use of Deloittes ThreadManager tool for managing project issues;

24

testing outside of standardized practices; and [m]inimal time allocated for system stress

25

testing.

26
27
28

c.
202.

The Colorado Department of Transportation Implementation

In 2001, the Colorado Department of Transportation (C-DOT) decided to

overhaul and consolidate the computer systems that managed its finance, payroll, procurement and
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record-keeping systems. In late 2003, the C-DOT issued RFPs for ERP software and

implementation services, eventually selecting SAP for Public Sector, Inc. and Deloitte Consulting

at a price tag of $30 million.

203.

The implementation process was examined in a case study by two professors at the

University of Denver. The study noted that C-DOT managers were pushed by Deloitte and

quoted Bill Cron, a former systems analyst at C-DOT, as stating that Deloitte took over CDOT

like a swarm of locusts. They ran everything, even though they didnt seem to know the

departments issues or requirements. Crewmembers who would use the new system received

minimal training, and it was determined prior to go-live that there would not be extensive testing

10

of the new system. The study also noted that a third party brought in to independently monitor

11

the project, Solbourne, was acquired by Deloitte the year after go-live.

12

204.

The payroll module went live on November 1, 2006. That winter, blizzards

13

dropped historic snowfall throughout the state, requiring extensive overtime among many of

14

Colorados transportation workers. These employees were rewarded with thousands of improper

15

paychecks and complications due to failures in the new system. On March 13, 2007, the Rocky

16

Mountain News reported that [n]early 200 CDOT workers stormed the Capitol after they were

17

shorted overtime pay because of SAP system problems, including overpaying and underpaying

18

workers. The Rocky Mountain News further noted Deloittes failure to properly test the system.

19

205.

A 2008 SAP promotional brochure, however, had a different take on Deloittes

20

performance: Deloitte worked closely with IT and more than 600 business users to achieve a

21

successful, on-schedule completion. Top management provided strong support and close attention

22

throughout.
d.

23
24

206.

The Miami-Dade County Public Schools Implementation

In 2005, Miami-Dade County Public Schools (M-DCPS) voted to implement a

25

new ERP system. In May 2006, M-DCPS issued an RFP for ERP software. M-DCPS ultimately

26

selected SAP Public Services, which represented that implantation of SAP for Public Sector would

27

save the district approximately $15 million a year. In December 2007, M-DCPS issued an RFP

28

for implementation services, eventually selecting Deloitte Consulting. In July 2007 the M-DCPS
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board authorized the district to enter into contracts totaling $6.7 million for SAP and $57 million

for Deloitte.

207.

The implementation was plagued by delays. On July 15, 2008, board member Dr.

Marta Prez proposed that M-DCPS notice and terminate the contract with Deloitte. Prez cited

several concerns, including, among others, that the same individuals responsible for the debacle at

LAUSD were running the M-DCPS implementation; that the presence of junior Deloitte directors

that bring no expertise to the project indicates that Deloitte is using the M-DCPS implementation

for training their staff; and that Deloitte stored ERP project documents in an eRoom that was

accessible only to Deloitte. M-DCPS commissioned an independent audit of the implementation

10

project by KPMG.

11

208.

The report, presented October 24, 2008, found the project to be at risk of cost and

12

schedule overruns, noting that the implementation was already four weeks behind schedule. The

13

report also noted significant reductions in project scope, a common method for masking cost

14

overruns. In addition, KPMG found inconsistencies in Deloittes testing criteria, specifically that

15

exit/entry criteria -- which serve as gatekeepers in determining if a project should proceed to

16

the next phase of testing or go-live -- did not match defect severity definitions outlined

17

elsewhere. Such inconsistencies create an opportunity for subjective interpretation of test

18

results.

19

209.

The report further found that Deloittes invoicing schedule was not necessarily

20

tied to the value created by each deliverable to the district, and that Deloitte invoice[d] for

21

deliverables at a rate faster than the cost of resources it deploys. This approach generates a

22

buffer for Deloitte that may assure that it will be ahead in the event of a project cancellation by

23

M-DCPS.

24

210.

In response to the KPMG report, on January 14, 2009, M-DCPS voted to terminate

25

the contract with Deloitte. Said board member Wilbert Holloway, [w]eve been pouring money

26

into a black hole for quite a while now.


e.

27
28

211.

The Enterprise Continues

Despite the series of failed public-sector implementation projects at the County,


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LAUSD, the City of San Antonio, C-DOT, and M-DCPS, SAP continues to promote its

partnership with Deloitte and Deloittes public-sector implementation skills. According to SAP,

Deloitte [h]as a scope of operations and a depth of qualified resources that gives Deloitte a

significant edge in industry, functional, and geographic market knowledge, experience, and

competency. . . . It has one of the largest, most experienced SAP consulting practices in the global

market[,]. . . . [and] together Deloitte and SAP develop, market, sell, and deliver world-class

services and solutions designed to help companies. These promotional representations continue

to bolster false confidence in future public-sector clients.

III.

10

Injury To The County


212.

The defendants misconduct has inflicted enormous damage on the County. As a

11

result of defendants unlawful activities, the County paid Deloitte and SAP Public Services, Inc.

12

more than $15 million in fees for a defective SAP system that is unable to operate its required

13

business processes. The County has further sustained the following damages, presently estimated

14

at $15 million:

15

(a)

16

costs associated with the post-implementation remediation efforts


(consisting of all internal expenditures related to the failed implementation,

17

including the allocation of personnel to participate in the remediation effort,

18
attendant salaries, benefits and overtime expenses; payments made to third19
party vendors and independent consultants to attempt to correct the

20
21

problems with the SAP system implemented by Deloitte; and costs incurred

22

in connection with the evaluation of the defective SAP system);

23

(b)

24

damages incurred in connection with the Countys inability to produce


accurate financial statements from the SAP system and otherwise comply

25

with state and federal requirements and other contractual obligations;

26
27

(c)

costs incurred for software training which Deloitte failed to provide; and

28
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(d)

1
2
3
4

SAP system.
213.

7
8
9

The County further estimates that it will cost at least $6 million to replace the SAP

system with a functioning ERP system that can meet the Countys functional requirements.

5
6

various other internal capital and operating expenses related to the defective

CLAIMS FOR RELIEF


214.

As a direct result of Deloittes and the SAP Defendants misconduct, the County

suffered substantial injuries in an amount no less than $30 million.


215.

All conditions precedent to the Countys entitlement to recover on its claims herein

have been performed, have occurred or have been waived.

10
FIRST CLAIM
Violation of the Racketeer Influenced and Corrupt Organizations Act
(18 U.S.C. 1962(c) and 1964(c))
(Against Deloitte and the SAP Defendants)

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

216.

The County repeats and realleges each and every allegation set forth in paragraphs

1 through 215, above, as though fully set forth herein.


217.

Beginning at various times from approximately 2004 through the filing of this

complaint, and continuing into the future, in California and elsewhere, Deloitte and the SAP
Defendants were and are associated-in-fact in, and with, a continuing criminal enterprise which has
conducted its affairs through a pattern of racketeering activity, and whose conduct and activities
affect interstate or foreign commerce. The Enterprise was and is engaged in a scheme to defraud
governmental entities while reaping tens of millions of dollars in ill-gotten gains in connection
with implementations of ERP software known as SAP for Public Sector.
218.

As a part of this scheme that was directed against the County, the Enterprise

misrepresented Deloittes skills and experience in SAP for Public Sector software to obtain highly
lucrative public sector implementation and licensing contracts; fraudulently concealed
implementation problems that resulted from Deloittes lack of skills; silenced an SAP employee
who raised issues with Deloittes deficient implementation work; and deprived the County of the
honest services of its officers, through the bribery of defendant Culver, in an effort to cover up
Deloittes deficient implementation work, obtain payment for work that was not properly
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performed (or not performed at all) and cause the County to enter into additional contracts with

Deloitte and SAP Public Services, Inc.

219.

Deloitte and the SAP Defendants knowingly and intentionally participated, directly

and indirectly, in the conduct of the criminal Enterprises affairs through a pattern of racketeering

activity, and, in so doing, injured the County in its business and property. Their conduct included

multiple, related and continuous acts in violation of: 18 U.S.C. 2, 1341 and 1346 (mail fraud),

18 U.S.C. 2, 1343 and 1346 (wire fraud); Cal. Pen. Code 67 (bribery) and 18 U.S.C. 1952

(interstate and foreign travel to aid racketeering).

220.

The predicate acts alleged herein occurred after the effective date of 18 U.S.C.

10

1961 et seq., and the last such act occurred within 10 years after the commission of a prior act of

11

racketeering activity. These racketeering activities include repeated acts of:

12

(a)

Mail Fraud: Deloitte and the SAP Defendants, having devised a scheme

13

or artifice to defraud the County out of millions of dollars and of its right to receive honest

14

services from its employees, did, for the purpose of furthering and executing this scheme, deposit,

15

cause to be deposited, or otherwise commit overt acts specifically designed to aid the others

16

purpose in depositing matters or things to be delivered by mail or such carriers, in violation of 18

17

U.S.C. 1341, 18 U.S.C. 1346 and 18 U.S.C. 2. This fraudulent scheme, and its objects, are

18

alleged with particularity in paragraphs 1-14, 23-33, 38-211and has been furthered by, among

19

other acts of mail fraud, the following communications:

20
21

Use of U.S. Mails in Violation of 18 U.S.C. 1341


Date

22
23
24
25
26

6/7/2004
11/6/2004

Subject Matter

From/To

Response to the Countys Request for


Proposal concerning the Project
Response to the Countys Request for
Clarification concerning Deloittes and the
SAP Public Services, Inc.s Project bid

Deloitte director Seidenfeld/


County Project Director Culver
Seidenfeld/ Culver

Each use by Deloitte or the SAP Defendants of the United States mails, in furtherance of the

27
28

fraudulent scheme, constitutes a separate and indictable mail fraud offense and is thus an act of
racketeering pursuant to 18 U.S.C. 1961(1).
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(b)

Wire Fraud: Deloitte and the SAP Defendants, having devised a scheme

or artifice to defraud the County out of millions of dollars and of its right to receive honest

services from its officers, did, for the purpose of furthering and executing this scheme, transmit,

cause to be transmitted, or otherwise commit overt acts specifically designed to aid the others

purpose in transmitting by means of wire communications in interstate or foreign commerce,

writing, signs, signals, pictures and sound, in violation of 18 U.S.C. 1343, 18 U.S.C. 1346 and

18 U.S.C. 2. This fraudulent scheme, and its objects, are alleged with particularity in paragraphs

1-14, 23-33, 38-211, and has been furthered by, among other acts of wire fraud, the following uses

of the wires:

10
11

Use of the Interstate Wires in Violation of 18 U.S.C. 1343, 1346


Date

Subject Matter

From/To

6/30/2005

E-mail including an 18-page power point


presentation promoting the benefits of ERP
2005

9/17/2005

E-mail touting the benefits of becoming a


Ramp-Up client

SAP account executive Peggy


Phelps/ County Project
Manager Natalee Hillman
Phelps/ County Project
Director Culver, Deloitte
manager Brooks, SAP
customer service executive
John Meyer, and SAP
consultant Tim McCormick

12
13
14
15
16
17
18

9/28/2005

19
20
21

9/29/2005
11/07/2005

22
23

3/8/2006

24

3/10/2006

25

5/12/2006

26
27
28

10/4/2006
11/3/2006
1/4/2007

E-mail including a presentation to persuade


the Countys Executive Steering Committee
to seek Ramp-Up status
E-mail asking Culver to serve as a reference
for SAP ERP Ramp-Up 2005 to the City of
Richmond
E-mail regarding the Countys Ramp-Up
acceptance letter

Phelps & Meyer/Culver

Meyer/Culver
Meyer/ Brooks

SAP consultant Tamara Hillary


and other SAP U.S. staff/
SAP staff in Germany
Telephone discussion of SAP consultant Hans
SAP engagement manager
Metzs involvement in the Project
Paul Blaney/Metz
E-mail addressing Metzs criticisms of the
Deloitte manager Brooks/
Project
Culver
E-mail concerning Metzs involvement in the Brooks/SAP customer services
Project
executive John Meyer
E-mail dinner invitation to Masas in San
Deloitte manager Kirsten
Francisco
Mecklenburg/Culver
E-mail dinner invitation to Gary Danko in
Mecklenburg/Culver
52
Conference call concerning unauthorized
design changes to the Countys SAP system

COUNTY OF MARINS AMENDED COMPLAINT AGAINST DELOITTE CONSULTING LLP,


SAP AMERICA, INC., SAP PUBLIC SERVICES, INC. AND ERNEST CULVER

Case3:11-cv-00381-SI Document63 Filed04/06/11 Page53 of 63

San Francisco
E-mail advising Culver of the status of his
employment application with Deloitte
E-mail advising Culver of the status of his
employment application with Deloitte

2/8/2007

2/13/2007

3/16/2007

E-mail lunch invitation

4/9/2007

E-mail request to sign-off on Project invoices

5
6
7
8

4/20/2007
5/1/2007

5/4/2007

10

5/15/2007

11
12

E-mail request to sign-off on Project


deliverables
E-mail dinner invitation
E-mail dinner invitation
E-mail request to sign-off on Project
deliverables
E-mail request to facilitate sign-off on Project
deliverables
E-mail request to facilitate sign-off on Project
deliverables
E-mail request to sign-off on Project
deliverables
E-mail requesting instruction concerning
deliverable sign-offs
E-mail instruction concerning deliverable
sign-offs
E-mail invitation to lunch and to sign Project
deliverables
E-mail reporting Culvers agreement to lunch
and sign-off on deliverables

4/19/2007

6/5/2007
6/19/2007

13
14

6/19/2007

15

6/19/2007

16

6/22/2007

17

6/25/2007

Deloitte partner Nick


Chiominto/Culver
Chiominto/Culver
Deloitte manager Mark
Anderson/Culver
Deloitte director H.T. Vaught/
Culver
Anderson/Culver
Anderson/Culver
Anderson/Culver
Anderson/Culver
Anderson/Deloitte consultant
John Cannella
Anderson/Cannella
Anderson/County employee
Kevin Yeager
Anderson/Vaught
Vaught/Anderson
Anderson/Culver
Anderson/Vaught

18
19
20

Each communication by Deloitte or the SAP Defendants using a United States wire, including email communications and interstate or foreign telephone calls, in furtherance of the fraudulent

21
scheme, constitutes a separate and indictable wire fraud offense and is thus an act of racketeering
22
23
24

pursuant to 18 U.S.C. 1961(1).


(c)

Bribery of an Executive Officer: Deloitte and the SAP Defendants

25

offered numerous bribes to defendant Culver, an executive officer as contemplated by the

26

California Penal Code, with the intent to influence him in respect to the discharge of certain acts,

27

decisions and opinions and other proceedings, in violation of laws of the State of California, Cal.

28

Pen. Code 67, as alleged with greater particularity in the foregoing and following paragraphs,
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including without limitation paragraphs 11, 33, 111-182. Each offer, promise and/or attempts by

Deloitte and the SAP Defendants to corruptly influence Culver, in furtherance of the fraudulent

scheme, constitutes a separate and indictable act of bribery under Cal. Pen. Code 67, and is thus

an act of racketeering pursuant to 18 U.S.C. 1961(1).

(d)

Interstate and Foreign Travel in Aid of Racketeering Enterprises/Bribery

of an Executive Officer: Deloitte and the SAP Defendants traveled in interstate commerce with

the intent to commit or otherwise promote the commission of bribery, as proscribed by the laws of

the State of California at Cal. Penal Code 67, and thereafter committed bribery, or otherwise by

overt act promoted such unlawful activity, in violation of 18 U.S.C. 1952, as alleged with greater

10

particularity in the foregoing paragraphs, including without limitation paragraphs 111-182. Each

11

act of travel in interstate commerce with the intent to commit or promote bribery, in furtherance of

12

the fraudulent scheme, constitutes a separate and indictable offense, and is thus an act of

13

racketeering pursuant to 18 U.S.C. 1961(1).

14

221.

Deloitte and the SAP Defendants are liable for the above-described racketeering

15

activities as entities per se because the culpable acts were either performed by Deloittes and the

16

SAP Defendants officers, directors and/or managing agents or performed by Deloittes and the

17

SAP Defendants agents and/or employees as authorized, ratified, or with advance knowledge

18

consciously disregarded by Deloittes and the SAP Defendants officers, directors and/or

19

managing agents. Moreover, Deloitte and the SAP Defendants also attempted to benefit, and did

20

benefit, from the activities of their employees and agents alleged herein, and thus were not passive

21

victims of racketeering activity, but active perpetrators.

22

222.

The County has been injured in its business or property as a direct and proximate

23

result of Deloittes and the SAP Defendants violations of 18 U.S.C. 1962(c), including injury

24

by reason of the predicate acts constituting the pattern of racketeering activity, as alleged with

25

greater particularity in the foregoing paragraphs, including without limitation paragraphs 212-213.

26

223.

As a result of Deloittes and the SAP Defendants violations of 18 U.S.C.

27

1962(c), the County has suffered substantial damages, in an amount to be proved at trial. Pursuant

28

to 18 U.S.C. 1964(c), the County is entitled to recover treble its general and special
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compensatory damages, plus interest, costs and attorneys fees, incurred by reason of Deloittes

and the SAP Defendants violations of 18 U.S.C. 1962(c).

SECOND CLAIM
Conspiracy to Violate the Racketeer
Influenced and Corrupt Organizations Act
(18 U.S.C. 1962(d) and 1964(c))
(Against Deloitte and the SAP Defendants)

4
5
6
7
8
9

224.

The County repeats and realleges each and every allegation set forth in paragraphs

1 through 223 above, as though fully set forth herein.


225.

Beginning at various times from approximately 2004 through the filing of this

10

Complaint, and continuing into the future, in California and elsewhere, Deloitte, the SAP

11

Defendants and others acting in concert with or on behalf of the foregoing, were aware of the

12

essential nature and scope of the criminal Enterprise detailed in paragraphs 1-14 and 23-33, and

13

knowingly, willfully, and unlawfully, did conspire, combine, confederate and agree together to

14

violate 18 U.S.C. 1962(d) by furthering, promoting, and facilitating operation or management of

15

that criminal Enterprise, and in violation of 18 U.S.C. 1962(c).

16

226.

In furtherance of this unlawful conspiracy and its multiple objects as alleged herein,

17

Deloitte and the SAP Defendants, and various co-conspirators, committed numerous overt acts,

18

including but not limited to those set forth in paragraphs 23-213.

19

227.

The County has been injured in its business or property as a direct and proximate

20

result of Deloittes and the SAP Defendants violations of 18 U.S.C. 1962(d), including injury

21

by reason of the predicate acts constituting the pattern of racketeering activity alleged herein.

22

228.

As a result of the conspiracy between and among Deloitte and the SAP Defendants

23

to violate 18 U.S.C. 1962(c), the County has suffered substantial damages, in an amount to be

24

proved at trial. Pursuant to 18 U.S.C. 1964(c), the County is entitled to recover treble its general

25

and special compensatory damages, plus interest, costs and attorneys fees, incurred by reason of

26

Deloittes and the SAP Defendants violations of 18 U.S.C. 1962(d).

27
28

229.

Deloitte and the SAP Defendants are liable for the above-described conspiracy as

entities per se because the culpable conduct was either performed by Deloittes and the SAP
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Defendants officers, directors and/or managing agents or performed by Deloittes and the SAP

Defendants agents and/or employees as authorized, ratified, or with advance knowledge

consciously disregarded by Deloittes and the SAP Defendants officers, directors and/or

managing agents. Moreover, Deloitte and the SAP Defendants also attempted to benefit, and did

benefit, from the activities of their employees and agents alleged herein, and thus were not passive

victims of the racketeering conspiracy, but active perpetrators.

THIRD CLAIM
(Fraud)
(Against Culver)

8
9
10

230.

The County repeats, realleges and incorporates the allegations contained in

paragraphs 1 through 229 as if fully set forth herein.

11

231.

Culvers fraudulent conduct is alleged with particularity in paragraphs 111-182.

12

232.

As set forth above, and in paragraphs 120-122, 125-135, 143-182, Culver

13

intentionally made numerous misrepresentations of material facts to, and concealed material facts

14

(that he was obligated as a County officer to disclose) from, County officials, to induce the County

15

to: (a) proceed with the Release II go-live, (b) pay Deloitte for work that improperly performed

16

(or did not perform at all), and (c) cause the County to enter into additional contracts with Deloitte

17

and SAP Public Services, Inc.

18
19
20

233.

Culver knew such misrepresentations were false at the time he made them, and that

such concealments were committed in violation of Culvers duties as a County officer.


234.

Given Culvers status as a County officer, the County was unaware of Culvers

21

concealment and justifiably relied on Culvers misrepresentations to provide truthful information

22

concerning Deloittes and SAP Public Services, Inc.s work on the Project, how and whether to

23

proceed at various stages in the Project, whether invoices submitted by Deloitte and SAP Public

24

Services, Inc. should be paid and whether the County should commit to paying Deloitte and SAP

25

Public Services, Inc. for services in connection with additional contracts.

26

235.

27

a result of his fraud.

28

236.

Culver acted with malice and specifically intended that the County suffer injury as

As a direct and proximate result of Culvers fraud, the County sustained substantial
56

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1
2

damages in an amount to be determined by the trier of fact.


237.

In addition, because Culvers fraudulent and malicious actions were committed

knowingly, willfully and in conscious disregard of the rights of the County, the County is entitled

to recover punitive damages in an amount to be determined by the trier of fact.

FOURTH CLAIM
(Aiding and Abetting Fraud)
(Against Deloitte and the SAP Defendants)

6
7
8
9
10
11

238.

The County repeats, realleges and incorporates the allegations contained in

paragraphs 1 through 237 as if fully set forth herein.


239.

The conduct of Deloitte and the SAP Defendants in aiding and abetting Culvers

fraudulent conduct is alleged with particularity in paragraphs 111-182.


240.

Deloitte and the SAP Defendants solicited, encouraged and/or substantially assisted

12

Culvers above-described fraud upon the County by, among other things, bribing him to

13

misrepresent to, and otherwise conceal from, the County the true status of the Project and the

14

quality of Deloittes Project work.

15

241.

Deloittes and the SAP Defendants solicitations, encouragement and/or substantial

16

assistance to Culver were performed despite Deloittes and the SAP Defendants knowledge that

17

the acts solicited, encouraged and/or substantially assisted constituted the commission of fraud

18

upon the County.

19

242.

Moreover, Deloitte and the SAP Defendants specifically intended that Culver

20

would commit fraud upon the County as a result of their solicitations, encouragement and/or

21

substantial assistance and did so in conscious disregard of the known and grave harm that would

22

(and did) befall the County as a result of its reliance of Culvers fraudulent conduct.

23

243.

As a direct and proximate result of the conduct of Deloitte and the SAP

24

Defendants, Culver committed fraud against the County, and the County has incurred damages in

25

an amount to be determined by the trier of fact. The County, therefore, is entitled to hold Deloitte

26

and the SAP Defendants jointly and severally liable for all damages resulting to the County from

27

Culvers fraudulent conduct.

28

244.

In taking the aforesaid actions, Deloitte and the SAP Defendants acted with malice,
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fraud and oppression, and in conscious disregard of the Countys rights. Accordingly, the County

is entitled to recover exemplary damages from Deloitte and the SAP Defendants in an amount to

be determined by the trier of fact.

245.

Deloitte and the SAP Defendants are liable for the above-described misconduct as

entities per se because the culpable acts were either performed by Deloittes and the SAP

Defendants officers, directors and/or managing agents or performed by Deloittes and the SAP

Defendants agents and/or employees as authorized, ratified, or with the advance knowledge and

consciously disregarded by Deloittes and the SAP Defendants officers, directors and/or

managing agents. Moreover, Deloitte and the SAP Defendants also attempted to benefit, and did

10

benefit, from the activities of their employees and agents alleged herein, and thus were not passive

11

victims of such misconduct, but active perpetrators.

12

FIFTH CLAIM
(Breach of Fiduciary Duty/Duty of Loyalty)
(Against Culver)

13
14
15
16
17
18

246.

The County repeats, realleges and incorporates the allegations contained in

paragraphs 1 through 245 as if fully set forth herein.


247.

Culvers breaches of fiduciary duty and duty of loyalty are alleged with

particularity in paragraphs 111-182.


248.

Culver was the Assistant Auditor-Controller at the County and Project Director,

19

held a position of trust and confidence with the County. Culver supervised the work of others,

20

exercised discretion and worked independently in many of his job assignments and duties. Culver

21

also represented the County in its dealings with third parties and was an agent of the County.

22

Culver thus owed the County a fiduciary duty and duty of loyalty that included, but was not

23

limited to, an obligation not to take any action that would be contrary to the Countys best

24

interests or that would deprive the County of any opportunities, profit or advantage.

25

249.

Culver breached his fiduciary duty and duty of loyalty to the County by inducing

26

the County to pay Deloitte for work that Culver knew had not been properly performed (or not

27

performed at all), to enter into additional contracts with Deloitte and the SAP Defendants and to

28

proceed with Release II go-live.


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1
2
3

250.

As a direct result of Culvers wrongful conduct, the County sustained damages in

an amount to be determined by the trier of fact


251.

In taking the aforesaid actions, Culver acted with malice, fraud and oppression, and

in conscious disregard of the Countys rights. Accordingly, the County is entitled to recover

exemplary damages from Culver in an amount to be determined by the trier of fact.


SIXTH CLAIM
(Aiding and Abetting Breach of Fiduciary Duty and Duty of Loyalty)
(Against Deloitte and the SAP Defendants)

6
7
8
9
10
11
12

252.

The County repeats, realleges and incorporates the allegations contained in

paragraphs 1 through 251 as if fully set forth herein.


253.

The conduct of Deloitte and the SAP Defendants in aiding and abetting Culvers

breaches of fiduciary duty is alleged with particularity in paragraphs 111-182.


254.

As described, Deloitte and the SAP Defendants solicited, encouraged and/or

13

substantially assisted Culvers breaches of fiduciary duty and duty of loyalty vis--vis the County

14

by, among other things, bribing him to misrepresent to, and otherwise conceal from, the County

15

the true status of the Project and the quality of Deloittes Project work.

16

255.

Deloittes and the SAP Defendants solicitations, encouragement and/or substantial

17

assistance to Culver were performed despite Deloittes and the SAP Defendants knowledge that

18

the acts solicited, encouraged and/or substantially assisted constituted the commission of

19

intentional torts upon the County.

20

256.

Moreover, Deloitte and the SAP Defendants specifically intended that Culver

21

would commit such breaches as a result of their solicitations, encouragement and/or substantial

22

assistance, and did so in conscious disregard of the known and grave harm that would (and did)

23

befall the County as a result of Culvers breaching conduct.

24

257.

As a direct and proximate result of the conduct of Deloitte and the SAP

25

Defendants, Culver breached his fiduciary duty and duty of loyalty to the County, and the County

26

has incurred damages in an amount to be determined by the trier of fact. The County, therefore, is

27

entitled to hold Deloitte and the SAP Defendants jointly and severally liable for all damages

28

resulting to the County from Culvers breaching conduct.


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258.

In taking the aforesaid actions, Deloitte and the SAP Defendants acted with malice,

fraud and oppression, and in conscious disregard of the Countys rights. Accordingly, the County

is entitled to recover exemplary damages from Deloitte and the SAP Defendants in an amount to

be determined by the trier of fact.

259.

Deloitte and the SAP Defendants are liable for the above-described misconduct as

entities per se because the culpable acts were either performed by Deloittes and the SAP

Defendants officers, directors and/or managing agents or were performed by Deloittes and the

SAP Defendants agents and/or employees as authorized, ratified, or with the advance knowledge

consciously disregarded by Deloittes and the SAP Defendants officers, directors and/or

10

managing agents. Moreover, Deloitte and the SAP Defendants also attempted to benefit, and did

11

benefit, from the activities of their employees and agents alleged herein, and thus were not passive

12

victims of such misconduct, but active perpetrators.


SEVENTH CLAIM
(Common Law Civil Conspiracy)
(Against Deloitte and the SAP Defendants)

13
14
15
16
17

260.

The County repeats, realleges and incorporates the allegations contained in

paragraphs 1 through 259 as if fully set forth herein.


261.

As set forth herein, Deloitte and the SAP Defendants, together with Culver and

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others, conspired with respect to the Third and Fourth Claims, and agreed to act in concert to

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commit unlawful acts.

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262.

Deloitte, the SAP Defendants, Culver and others shared the same conspiratorial

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objective, which was, among other things, to fraudulently induce the County to (a) proceed with

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the Release II go-live, (b) pay Deloitte for work that it improperly performed (or did not perform

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at all), and (c) cause the County to enter into additional contracts with Deloitte and SAP Public

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Services, Inc.

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263.

Deloitte and the SAP Defendants understood the objectives of the scheme, accepted

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them, committed overt acts in furtherance of the scheme, were active participants in the scheme

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and agreed explicitly and/or implicitly to do their part to carry out the objectives of the scheme.

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264.

As a direct and proximate result of the operation and execution of the conspiracy,
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the County has been injured and suffered damages in an amount to be determined by the trier of

fact.

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265.

At all relevant times, the conduct of Deloitte and the SAP Defendants was willful

and done with legal malice and knowledge that it was wrongful.
266.

Deloitte and the SAP Defendants are thus jointly and severally liable for their

tortious acts as well as the tortious acts of their co-conspirators, including Culver, and liable for all

damages, including exemplary damages, resulting from the conspiracy.

EIGHTH CLAIM
(Violation of Govt Code 1090)
(Against Culver)

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267. The County repeats, realleges and incorporates the allegations contained in

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paragraphs 1 through 266 as if fully set forth herein.


268.

Culver was the Assistant Auditor-Controller and the Project Manager for the

County.
269.

As detailed above, from November 2006 through July 2007, Culver, in his official

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capacity as a County officer, made and/or participated in the making of various contracts with

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Deloitte and the SAP Defendants.

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270.

At the time Culver made and/or participated in the making of those contracts,

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Culver was accepting significant present and/or prospective financial benefits from Deloitte and

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the SAP Defendants, and thus had a cognizable financial interest in those contracts.

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271.

irrevocably null, void, and of no effect.


NINTH CLAIM
(Return of Monies Received in Violation of Govt Code 1090)
(Against All Defendants)

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Pursuant to California Government Code 1090, et seq., the contracts are

272.

The County repeats, realleges and incorporates the allegations contained in

paragraphs 1 through 271 as if fully set forth herein.


273.

As detailed above, from November 2006 through July 2007, Culver, in his official

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capacity and on the Countys behalf, signed or otherwise influenced the making of contracts with

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Deloitte and/or the SAP Defendants in which Culver had a financial interest.
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274.

Pursuant to Government Code Sections 1090, et seq., the contracts are irrevocably

null, void and of no effect.


275.

Pursuant to Government Code Sections 1090, et seq., all monies paid pursuant to

such contracts must be disgorged by their recipients, and returned to the County as wrongfully

obtained public monies, irrespective of the recipients professed innocence or benefits conferred

by the recipients in exchange for those monies.

276.

Accordingly, the County is entitled to the immediate return of all monies from

Deloitte and/or the SAP Defendants received from the County pursuant to all contracts void by

virtue of Culvers violation of California Government Code Section 1090, in an amount to be

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determined at trial.
PRAYER

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WHEREFORE, the County of Marin respectfully requests that this Court enter judgment
against Deloitte, the SAP Defendants and Culver and provide the following relief:
(1)

Awarding the County statutory treble actual, economic, consequential, and

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compensatory damages in an amount to be determined by the trier of fact, but in

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no event less than $90 million;

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(2)

In the alternative, awarding the County actual, economic, consequential, and

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compensatory damages in an amount to be determined by the trier of fact, but in

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no event less than $30 million;

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(3)

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interest by Culver;
(4)

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Awarding the County punitive and/or exemplary damages in an amount to be


determined by the trier of fact;

(5)

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Rescinding all contracts fraudulently induced or made pursuant to a conflict of

Awarding the County reasonable attorneys fees incurred during the prosecution
of this action;

(6)

Awarding the County pre-judgment and post-judgment interest at the highest


rate(s) provided by law; and

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(7)

Awarding the County such other and further relief, at law and in equity, to which
it may be entitled.

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Dated: April 6, 2011


KASOWITZ, BENSON, TORRES & FRIEDMAN LLP

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By: _/s/ Mark P. Ressler____________________


MARK P. RESSLER
RONALD S. ROSSI
R. TALI EPSTEIN
1633 Broadway
New York, New York 10019
Telephone:(212) 506-1700
Facsimile: (212) 506-1800
mressler@kasowitz.com
rrossi@kasowitz.com
tepstein@kasowitz.com

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OFFICE OF THE COUNTY COUNSEL, COUNTY OF MARIN

PATRICK K. FAULKNER (SBN 070801)


County Counsel
SHEILA SHAH LICHTBLAU (SBN 167999)
Deputy County Counsel
3501 Civic Center Drive, Room 275
San Rafael, California 94903
Telephone:(415) 499-6117
Facsimile: (415) 499-3796
pfaulkner@co.marin.ca.us
slichtblau@co.marin.ca.us
Attorneys for Plaintiff
COUNTY OF MARIN

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