While we typically celebrate solution providers with the VAR500 and Fast Growth lists, this month we are putting a spotlight on VARs who are in the news for all the wrong reasons. This is about VARs behaving badly and resorting to unethical practices to make a buck.
Too many reports and settlements have come across our desk to ignore it. And here is a sampling of a few: Last September, two brothers who ran a reseller business called Syren Technology pleaded guilty to selling counterfeit Cisco networking gear it procured from China.
Then in May, the U. S. Department of Justice announced an investigation called Operation Network Raider, which led to the arrest of another VAR. This time it was Ehab Ali Ashoor, owner of CDS Federal Inc., a GSA-approved reseller. According to the DoJ, Ashoor purchased counterfeit Gigabit Interface Connectors from a Chinese vendor for $25 per unit, requesting the appropriate Cisco packaging to disguise the fact that the equipment was fake. But get this: He then sold them to the Marine Corps for $595 per unit, and the gear was set to go to Iraq near Fallujah before the DoJ tracked them down and arrested Ashoor.
And just last month, the jury awarded Technology Integration Group (TIG) $10.9 million in a battle with FusionStorm. This isn’t a one-person shop. Instead this suit has thrust two of our larger VAR500 companies into the limelight: TIG is a $267 million VAR ranked No. 155 on the 2010 VAR500 list and FusionStorm is a $436 million VAR ranked No. 115 on the list.
The jury found that FusionStorm and former TIG executives were liable for misappropriation of trade secrets, breach of fiduciary duty and breach of loyalty. This case initially was about a branch office set up in Tampa, Fla., by an ex-TIG executive who was hired by FusionStorm and courted many of his colleagues to join him.
At first glance, this story sounds typical: a colleague recruiting a fellow co-worker because he or she trusts this person or the person has a particular expertise he or she needs. Certainly, good talent is hard to come by and technical expertise is sometimes even harder. But the waters get a whole lot murkier. According to the case, some of the TIG engineers were still working at TIG and were on the FusionStorm payroll telling customers and vendors that TIG was going bankrupt.
We are all feeling the intense pressure to make money, especially in this economy. And the grim reality is that some VARs did not fare well. In fact, 10 percent to 15 percent of the VAR community have gone out of business during this recession. VARs are struggling with how to transform their business to one with recurring revenue, how to integrate cloud services, where to invest for the next wave, all the while serving customers who themselves have strained budgets. It’s tough. But it is also important that VARs as an industry remain the trusted adviser. And the operative word there is “trusted.”
We are suggesting a “Code of Ethics” for VARs and we’d like to work with you via our community to build it. What are the practices every VAR should adhere to? What unseemly practices have you seen? Please share your thoughts on the CRN community at community.crn.com. Incidents like the ones above only tarnish an industry that has evolved and remains vital to the IT community.
BACKTALK: Kelley Damore is VP, Editorial Director of Everything Channel. You can reach her at firstname.lastname@example.org.