Deloitte-Sagitec Trade Secret case delays unemployment aid fixes (1)

Federal indictments of key executives at technology company Sagitec Solutions could delay or derail state efforts to modernize unemployment insurance systems, including in Kentucky, Ohio and Texas.

Two Sagitec executives, David Gerald Minkkinen and Sivaraman Sambasivam-Face federal royalties alleging to have taken trade secrets from the User Interface Processing System at Deloitte LLP, where they previously worked, used them to create Sagitec’s user interface products and lied to federal investigators about it.

Legal issues complicate modernization efforts after many state unemployment insurance systems struggled to meet the challenges of the Covid-19 pandemic and the huge wave of jobless claims that began in March 2020. State agencies and laid-off workers seeking benefits have faced delays in processing applications. , problems implementing newly created federal benefits and an avalanche of fraudulent claims.

Even before this latest cause of delay, states’ user interface systems were not modernizing fast enough to be ready if another recession occurred in the near future.

“There are really only a handful of providers. Deloitte and Sagitec are the top two,” said Alexa Tapia, National Employment Law Project unemployment insurance campaign coordinator and former Kansas Department of Labor official. “It is a significant impact on the States. The process of modernizing their systems is arduous, expensive, and quite time-consuming,” even without the delays resulting from a vendor’s legal issues.

Kentucky, Ohio pending

Sagitec is or was involved in UI system replacements or upgrades in Kentucky, Ohio and Texas, before news broke earlier this month that the project’s start-up Kentucky is stuck due to the indictments. The executives were indicted Aug. 23 in federal court in West Virginia, following an investigation into a Sagitec project to revamp user interface systems in Maryland and West Virginia. The indictment says at least 11 Deloitte employees left and went to work for Sagitec between June 2013 and December 2015, just as Sagitec was launching its user interface technology business line.

The Ohio unemployment agency, which contracted with Sagitec, is “aware of the allegations and has suspended our project while we review the implications for our UI modernization project,” said agency spokesman Bill Teets via email on Monday.

The state first engaged Sagitec in 2018 to replace and provide support for both the employer tax side and the benefits and appeals processing side of its unemployment insurance system for a cost $86 million. Sagitec announced in May 2022 that it had completed the tax part – after the project faced challenges due to the Covid-19 pandemic and its huge salary of unemployment claims – and would then start the compensation and appeals system.

Local Kentucky news outlets, including the Lexington Herald-Leader, reported that the state should resume soliciting bids from tech vendors after reversing its decision to use Sagitec, citing labor official comments of State Jamie Link to lawmakers there on Sept. 15. Upgrading the state unemployment insurance system was expected to cost $47.5 million and take 18 to 24 months.

The Texas Workforce Commission has also contracted with Sagitec — a deal the company announced in July 2021 — to replace both taxes, benefits and appeals in its system. Representatives of the Texas agency could not immediately answer questions about the progress of the project Monday morning.

Sagitec expects to be able to continue with upgrades to its user interface system and fulfill its contracts with state agencies, Sagitec senior partner Rick Deshler said in a written statement Monday. He also noted that the company’s contract indemnified its customers, so state agencies should not face legal fallout.

“Sagitec has not been charged in this case and there are no indications that other employees are the target of government investigators,” he said. “We continue to work with the government on this matter as long as our operations are not affected: we are confident in our ability to meet our ongoing commitments to our customers.”

The case against the directors of Sagitec is United States vs. MinkkinenSDWVa., #2:22-cr-00163, 8/23/22

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