On June 28, 2012, the SEC published a litigation release regarding this matter. According to the release: "On June 27, 2012, the Securities and Exchange Commission ('Commission') charged that FalconStor Software, Inc., a Long Island, N.Y., data storage company, misled investors about bribes it paid to obtain business with a subsidiary of J.P. Morgan Chase & Co. FalconStor has agreed to pay a $2.9 million civil penalty to settle the Commission's case."

On June 27, 2012, the SEC announced that it charged that FalconStor Software, Inc. ("FalconStor"), a data storage company, misled investors about bribes it paid to obtain business with a subsidiary of J.P. Morgan Chase & Co. According to the SEC's complaint filed in U.S. District Court for the Eastern District of New York, FalconStor made materially misleading statements in earnings releases filed with the SEC in April 2008 and February 2009. The complaint charges FalconStor with violating the books-and-records and internal controls provisions of U.S. securities laws, and violations of the offering registration provisions and certain anti-fraud provisions. In order to settle the SEC's civil lawsuit, FalconStor admitted to the bribery scheme and agreed to pay a $2.9 million penalty and to institute enhanced compliance measures. The settlement is subject to court approval. Further, FalconStor will pay $2.9 million as part of a deferred prosecution agreement with the U.S. Attorney's Office for the East District of New York, which filed a related criminal case.

In the Complaint, the SEC stated: "This action arises out of a commercial bribery scheme at FalconStor, a public company specializing in electronic data protection and storage technology. In connection with that scheme, FalconStor, acting primarily through the Company's co-found and then-chief executive officer, president and chairman (the "CEO"), made materially misleading statements on earnings calls and in earnings releases, failed to accurately record the expenses associated with the bribes on its books and records, and failed to devise or implement a system of effective internal accounting controls to detect or prevent the bribes, which violated state law and were inconsistent with the Company's policies, and granted stock and options in unregistered, non-exempt transactions."

On July 3, 2012, the SEC filed a motion for consent judgment against FalconStor Software, Inc. On July 9, 2012, Federal District Judge Denis R. Hurley entered Final Judgment on Consent against FalconStor Software, Inc.