Securities and Exchange Commission v. FalconStor Software, Inc., Case No. 12-3200 (DRH) (E.D.N.Y).  On June  27, 2012, the SEC charged FalconStor Software, Inc., a data storage company, with misleading investors about bribes it paid to obtain business with a J.P. Morgan Chase & Co. subsidiary.  Starting in 2007 and under the direction of the now deceased co-founder and former CEO, FalconStor ordered bribes and paid them to the three executives of the subsidiary – JPMorgan Chase Bank, National Association, and their relatives, who received restricted stock, despite their ineligibility under FalconStor’s stock plan.  The bribes – lavish entertainment, cash payments, traveler’s checks, gift cards, and grants of FalconStor options and restricted stock, allowed FalconStor to secure the J.P. Morgan Chase subsidiary with a multimillion dollar contract and as their largest client. FalconStor never released information regarding the bribes to investors and inaccurately described the payments as “compensation,” “sales promotion,” or “entertainment.”  FalconStor mislead investors with false earnings releases, kept inaccurate record of expenses associated with the bribes, and lacked effective internal controls to detect bribery, violating state law and FalconStor’s policies.  FalconStor agreed to settle the SEC’s case by consenting to a court order permanently enjoining it from violating Sections 5(a), 5(c), and 17(a)(2) and (3) of the Securities Act and Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act; ordering it to pay a civil monetary penalty of $2.9 million; and ordering it to comply with certain undertakings.