FalconStor CEO Resigns Over Alleged Improper Payments

The company announced Huai's resignation in a brief statement in which it added that an investigation by law enforcement authorities is underway.

"Mr. Huai tendered his resignation following his disclosure that certain improper payments were allegedly made in connection with the Company's contract with one customer.

"The Company has fully cooperated with law enforcement authorities with respect to the ongoing investigation, and it will continue to do so. In addition, a special committee of the Board has been formed to conduct a full internal investigation of these matters and the special committee has retained counsel to assist it in its investigation," FalconStor said in a statement.

Inquiries for further information were referred to Seth Horowitz, vice president and general counsel of FalconStor, who said that FalconStor for now would only disclose what was included in that statement.

Huai was a co-founder of FalconStor in 2000. Prior to that, he also co-founded Cheyenne Software, developer of the ArcServe data protection technology. Cheyenne in 1996 was sold to CA Technologies, which was at the time known as Computer Associates International.

FalconStor's Board of Directors on Wednesday named Eli Oxenhorn, a current Board member, as non-executive chairman. James McNiel, the company's chief strategy officer, has been named as interim CEO and interim president. CFO James Weber was named interim COO while retaining his CFO position.

The change in leadership should not impact FalconStor's business with the channel, said Greg Knieriemen, vice president of marketing at Chi Corp., a Cleveland, Ohio-based solution provider and FalconStor partner.

Knieriemen said he has been working with McNiel for about 12 months, and in the last six months has collaborated with him on partner opportunities, and found him to be a real visionary.

Knieriemen said he recently saw an interview where McNiel outlined his strategy for FalconStor. "I almost cried, it was so good," he said. "His vision about the cloud and disaster recovery was brilliant."

Investors on Wednesday took a pessimistic view about the change in leadership at FalconStor and drove the price of the company's shares from its $4opening to a low of $2.60 before the price started rising once again to over $3.20 midway through the trading day.

"I'm surprised at the investors' reaction," Knieriemen said. "People should really get to know who James McNiel is."

While Knieriemen did not know the details behind the resignation of Huai, he said that Huai has always been a friend of the channel. "We had a great working relationship with him for seven years," he said. "He was very supportive of the channel and Chi Corp."