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Forescout Accused Of 'Channel Stuffing' In Whistleblower Email

Advent International says it received an email May 5 from forescout.whistleblower@protonmail.com alleging that Forescout involved Merlin in a “channel stuffing scheme” during Q4 2019. Forescout says the claim is without merit.

Private equity firm Advent International has subpoenaed Merlin International after a whistleblower email accused the cybersecurity solution provider of engaging in a “channel stuffing scheme” with Forescout.

Boston-based Advent said it received an email May 5 from a person at the encrypted email address forescout.whistleblower@protonmail.com alleging that Forescout involved Merlin in the scheme during the fourth quarter of 2019. San Jose, Calif.-headquartered Forescout sued Advent on May 20 after the private equity firm failed to close its previously announced $1.9 billion buy of the cybersecurity vendor.

Forescout told CRN that the whistleblower’s allegation is without merit, while Advent declined to comment further and Merlin didn’t immediately respond to requests for comment. Forescout’s stock is down $1.97 (7.9 percent) to $22.85 per share since Advent subpoenaed Merlin International in the Delaware Court of Chancery midday Friday.

[Related: Forescout Sues Advent For Allegedly Violating Acquisition Terms]

“This allegation relates to an ordinary course transaction with one of the company’s largest customers, for which Forescout has been paid in full, and which was confirmed by Forescout’s auditor,” Forescout said in a statement.

Advent directed Merlin in the subpoena to produce by June 24 all documents and communications concerning Forescout from Oct. 1, 2019, to present, including the cybersecurity partner’s actual and expected demand for Forescout products and services, any planned requests for proposals or expansions, and its general purchasing guidelines for third-party items.

Advent also instructed Merlin to testify during a June 24 deposition via Zoom. A 5.5-day trial in the Forescout-Advent case has been set for the week of July 20, with Forescout looking for the court to compel Advent to complete the transaction. Forescout was also sued by Fortinet last month for allegedly violating three patents held by Fortinet after its 2018 acquisition of rival Bradford Networks.

Advent said Tysons, Va.-based Merlin executed an indirect reseller agreement with Forescout on Dec. 31, 2019, just five weeks before the private equity firm agreed to buy the publicly held Forescout. The subpoena requests all documents and communications relating to the reseller agreement from Oct. 1, 2019, to present, including all related agreements, statements of work and purchase orders.

Advent additionally asked Merlin to turn over documents and communications around: difficulties with installing or deploying Forescout products and services; communication between Merlin and its end customers around Forescout products or services; audits or reviews of the transactions; and inventor balances and end customer purchase orders.

Merlin international was founded in 1997, employs 194 people, and services government and commercial organizations, according to the company’s LinkedIn page. The company is today led by co-founder and U.S. Navy veteran David Phelps, while former IBM Federal Sales Manager Julie Xiang serves as Merlin’s general manager, where she’s responsible for the commercial and public sector markets.

Outside of Forescout, Merlin works with pure-play cybersecurity vendors including CyberArk, Darktrace, Netskope, Okta and Swimlane, according to the company’s website. From a channel perspective, Merlin’s website indicates the company partners with some of the largest solution providers in the U.S. federal space including Booz Allen Hamilton, CACI, CDW-G, CGI, GDIT, ManTech and SAIC, as well as pure-play security giant Optiv.

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