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SAIC will pay $500M in New York City fraud case

Wednesday - 3/14/2012, 1:46pm  ET

McLean-based SAIC will pay $500.4 million as part of a deferred-prosecution agreement settlement over a fraud investigation into a management contract with New York City.

SAIC admitted to failing to investigate claims that one of its executives directed staffing tasks to a single subcontractor Technodyne LLC, in exchange for kickbacks, Bloomberg News reported, citing documents unsealed Wednesday by Manhattan federal prosecutors.

The alleged kickbacks were part of SAIC’s CityTime contract with New York City, an automated workforce management system that covers city employees in 65 different agencies.

As part of the settlement, SAIC agrees to an independent monitor who will review company policies and practices for three years.

The U.S. Attorney’s Office has also changed SAIC with one criminal count related to the CityTime contract, but prosecution will be deferred, and ultimately dismissed after three years, if SAIC complies with terms of the agreement.

“We have implemented strong improvements to our compliance program and have new leadership in place,” said John Jumper, who took over as chief executive March 1. Jumped replaced Walter Havenstein, who announced in October he would retire for personal reasons.

SAIC admits that it, “through the conduct of certain managerial employees and others, defrauded the city” into significantly overpaying for the CityTime contract work, the company said in a regulatory filing.

“Today’s settlement is a major victory for taxpayers, and just as importantly, it is a major victory for justice and public integrity,” says New York Mayor Michael Bloomberg in a statement.” Our administration has zero tolerance for corruption.”

SAIC (NYSE: SAI) took a $232 million loss provision in its fiscal third quarter for costs connected to the CityTime contract investigation. It will record an added loss provision of $308 million in its fourth quarter results.