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Feds investigating FalconStor

ReiJane Huai

ReiJane Huai Credit: Howard Schnapp

FalconStor Software Inc. is the subject of two separate federal investigations — by the U.S. Attorney's Office and by the SEC, the Melville company disclosed in regulatory documents Monday.

The federal prosecutors’ investigation had not been previously disclosed.

"We are being investigated by the United States Attorney's Office for the Eastern District of New York and by the Securities and Exchange Commission," FalconStor said in its quarterly report.

Newsday reported last week, based on SEC documents, that FalconStor's accounting practices are also the subject of a federal investigation. The documents did not say which agency is conducting the investigation.

The U.S. Attorney’s Office on Tuesday declined to comment on FalconStor.

FalconStor makes data backup and recovery software.

The investigations follow the September resignation of founder and chief executive ReiJane Huai, above, amid an investigation into whether he made improper payments to software vendors.

The resignation, and the whirlwind of investigations and shareholder lawsuits, did not affect the most recent quarterly results for FalconStor for the period ending Sept. 30.

However they will significantly affect the current fiscal quarter, the company predicted.
The company said James McNiel, previously a vice president was appointed to two interim jobs — chief executive and president.

With other executives, McNiel has "been conducting a thorough review of our operations and have already begun to make changes to both personnel and the organization of the company," FalconStor said.

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