PTC Pays $28 Million In Alleged Chinese Bribery Scandal

Software maker PTC Inc. has agreed to pay the federal government $28 million after regulators found the company allegedly bribed Chinese government officials with trips to Hawaii and Las Vegas and gifts such as iPods and wine in order to win contracts.

From 2006 to 2011, two China-based subsidiaries of PTC provided improper travel, gifts, and entertainment totaling nearly $1.5 million to Chinese government officials who were PTC customers, according to the U.S. Securities and Exchange Commission (SEC). Federal regulators said Needham, Mass.-based PTC gained approximately $11.8 million in profits from sales contracts with the Chinese government entities.

One top executive from a solution provider that partners with PTC said the incident wouldn't impact business, although the executive said it raised serious concerns when the investigation was first unveiled years ago.

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"We were worried about what could happen [when the investigation was first announced], but we're confident that PTC handled it the right way," said the executive, who declined to be identified. "Business and transactions and interacting with clients can be handled different ways in different regions."

The executive said his company has zero business in China and doesn't expect the settlement to impede it if it were to try to enter the region.

According to the SEC, third-party agents typically arranged overseas sightseeing trips in conjunction with a visit to a PTC facility, typically at its headquarters. "After one day of business activities, the additional days of sightseeing visits lacked any business purpose," an SEC statement said.

Chinese officials were compensated directly and through third-party agents for sightseeing and tourist activities including travel trips to New York, Las Vegas, San Diego, Los Angeles and Honolulu where the officials would receive guided tours, golfing and other "leisure activities," the SEC said. The employees of PTC's Chinese subsidiaries also provided gifts and entertainment such as cell phones, iPods, GPS systems, wine, gift cards and clothing, according to the SEC.

The payments were disguised as legitimate commissions or business expenses in the company's books and records.

PTC has since terminated the employees and business partners in China in connection with the investigation, according to a Form 10-K filing by the company with the SEC in November 2011.

In a statement to CRN, PTC said it has ’implemented extensive remedial measures related to these matters, including the termination of the responsible employees and business partners, the establishment of an entirely new leadership team in China, the establishment of a dedicated compliance function, and other enhancements to compliance programs.’

In a Feb. 16 filing with the SEC, PTC said it had entered into an agreement to pay the SEC around $13.7 million, while PTC's China subsidiaries will pay the U.S. Department of Justice $14.5 million to resolve the alleged violations.

China represents between 5 percent and 7 percent of PTC's overall business, according to SEC filings.

The company has lately been striving to gain market share in the emerging Internet of Things market. It recently launched its IoT platform, ThingWorx, a mobile application development platform.