HPE Alleges N.Y. Distributor Fraudulently Procured Products at Steep Discounts

Long Island IT distributor Aqua Systems engaged for nearly four years in a scheme through which it procured heavily discounted products from Hewlett Packard Enterprise “as the result of having made material misrepresentations regarding where and to whom the products would be sold,” alleged HPE in a fraud complaint Wednesday (docket 2:23-cv-05640) in U.S. District Court for Eastern New York in Central Islip. Aqua’s conduct, and that of its purchasing manager Murtuza Tofafarosh, caused certain HPE resellers to breach their contractual obligations and caused HPE to be “financially harmed,” it said. HPE sells its products through large distributors that are contractually bound to sell the goods only to HPE-authorized “partners,” or to independent resellers who agree to resell the HPE products to end users only in certain geographies, it said. Partners are required to buy HPE products only from authorized distributors, and to sell HPE products only to end customers, it said. Partners can request higher than normal discounts from HPE through an initiative called the “Big Deal Program,” said the complaint. HPE alleges Aqua and Tofafarosh conspired with CareTek, an HPE partner, to fraudulently procure hundreds of HPE products with about $875,000 in Big Deal Program discounts by falsely claiming the products would be sold to CareTek’s existing customer, Sentry Investments, it said. Tofafarosh coached CareTek on how to submit false Big Deal Program registrations to HPE, it said. An internal HPE audit found only 46 of the 713 heavily discounted products procured by CareTek for sale to Sentry under the Big Deal Program were actually sold to Sentry, it said. The rest were diverted to Aqua and Tofafarosh for sale to unauthorized entities, including to companies in Germany and Latin America that didn't qualify for access to them, it said.