In what may be the largest H-1B fraud case ever brought forward, the government has run into trouble with a judge having dismissed a number of counts and suppressed some of the evidence taken from an IT services firm's computers.

The ruling, made late last week, may help IT services firm Vision Systems Group Inc. in its defense against government allegations that it had set up shell companies in Iowa so it could pay some of its visa workers the state's lower prevailing wage rates.

The U.S. is seeking $4.9 million from the company in an indictment issued nearly one year ago.

Vision Systems and its executives are fighting the case in Iowa, where U.S. District Court Judge Robert Pratt, in a 41-page ruling, took the government to task for parts of its case, especially the process followed in its seizure of electronic records.

In February 2009, about 20 agents from the U.S. Immigration and Customs Enforcement agency showed up at the South Plainfield, N.J.-based firm with a search warrant that allowed them to gather paper and electronic records. They left with nearly 100 boxes of evidence "that required two postal trucks to transport," according to court records.

The search warrant also enabled the government to make digital images of hard drives and other storage devices if they could not be searched on the scene in a reasonable amount of time. The government made digital images of 21 hard drives, according to various court documents.

But this electronic data was subsequently suppressed by the judge's ruling last week because of two key problems.

The government transferred those images to a computer expert who then extracted all the files matching the search criteria established by the federal agent in charge of gathering the evidence.

The judge said the search criteria used by the government was "over-inclusive" and not limited to the warrant. For instance, the computer expert was required to produce "all email files" and "Word (or Word type) documents opened/modified in the last year."

The warrant also required the government to make its examination of the digital images within 60 days, which the government failed to do, according to the judge.

Pratt termed the handling of the electronic search as "highly reckless" and "gross recklessness," but he did not suppress the paper files collected.

The court also dismissed a number of counts related to charges involving mail fraud, knocking out eight of the 18 counts.

How Judge Pratt's ruling affects the case is uncertain. The U.S. prosecutors weren't immediately available for comment.

Mark Weinhardt, an attorney representing Vision Systems, said, "We are pleased with the District Court's ruling, and we look forward to continued proceedings in the case."

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov or subscribe to Patrick's RSS feed . His e-mail address is pthibodeau@computerworld.com.