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By | Chris Mellor 30th September 2010 08:13

FalconStor loses its head

CEO accused of improper payments

Storage software company FalconStor has lost ReiJane Huai, its co-founder, chairman, CEO and president, due to alleged improper payments. It looks as if he has been ousted.

The improper payments relate to a single FalconStor customer. A company statement said that it had "fully cooperated with law enforcement authorities with respect to the ongoing investigation, and it will continue to do so".  A special board committee has been formed to investigate the matters and has retained a lawyer to assist. There are no further details from the company.

FalconStor has already filled the positions vacated by the departed Huai, with board member Eli Oxenhorn appointed a non-executive chairman. James McNiel gets promoted from chief strategy officer to interim CEO and interim president, while James Weber gets chief operating officer responsibilities added to his CFO role, on an interim basis.

Back in August we reported on problems at FalconStor, with sources telling us that morale was "very low, confidence in senior management equally low, and lots of people, including top talent in the field, looking to go to other jobs".

At the time the company denied that anything was amiss. Fadi Albatel, VP and senior director of marketing, said: "I wouldn't say there's anything extraordinary happening." What a difference a month makes.

We were told at the time that McNiel had been appointed to try and keep a check on ReiJane Huai, who was thought to have too much power and be making bad decisions. Huai had a substantial stockholding and his position was strong. Now it appears that, as happened at HP with ex-CEO Mark Hurd, the board has found a reason to lever the top man out of his position.

It is a tragedy for Huai, who co-founded FalconStor in 2000. The company's data protection, deduplication, and virtual tape library software is used by Acer, Hitachi Data Systems and other storage suppliers on an OEM or reselling basis.

The news caused FalconStor' stock price to dive from $4.06 to $2.68, later recovering to $3.15.

Sources suggest McNiel, respected by channel members for his views on what's happening with data protection, could become the permanent CEO. ESG's co-founder and senior analyst Steve Duplessie tweeted: "Rei out at Falconstor, was inevitable. Jim McNeil CEO now, first time in years I'm bullish on them." ®

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Chris Mellor

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