Until Obama's announcement last week, Kundra was the District of Columbia's chief technology officer. The FBI raid coincided with two arrests as part of a bribery sting -- Yusuf Acar, 40, and Sushil Bansal, 41 -- according to a report in the Washington Post.
An administration official tells CBS News that Kundra has taken a leave of absence from his position as the federal government's CIO until the FBI investigation is sorted out.
At an arraignment in federal court Thursday afternoon, Acar was charged with conspiracy to commit bribery, wire fraud, conflict of interest, and conspiracy to launder monetary instruments. He was ordered to be held without bond until a hearing Tuesday because prosecutors said he posed a flight risk.
Bansal was charged with conspiracy to commit bribery and conspiracy to launder monetary instruments, though prosecutors said a plea agreement could possibly be reached in his case. He was released after Thursday's arraignment but ordered not to conduct overseas financial transactions or leave the Washington metropolitan area.
Acar worked for Kundra as an information systems security officer with responsibility for government contracts. A number of requests for bids posted on the District's Web site list Acar as "responsible for general administration of the contract" and "responsible for the day-to-day monitoring and supervision of the contract, of ensuring that the work conforms to the requirements of this contract."
Bansal previously worked as a project manager for the D.C. government and then founded a consulting firm called Advanced Integrated Technologies Corporation. AITC is a DC-government certified contractor with multiple contracts with the city, including one for "information technology services" worth $10 million.
AITC says that its contracts with the city of Washington, D.C. include technical support and network administration for the DMV's driver licensing system and that the city purchased McAfee anti-spyware licenses from AITC.
The FBI affidavit in support of their arrest said Acar and Bansal conspired to defraud the District of Columbia Government and commit bribery through a variety of schemes. In one such alleged scheme, a vendor such as AITC would bill the D.C. government for a higher number of goods than it would provide. A CTO official like Acar would allegedly falsely certify that the greater quantity was actually received, so the vendor would be paid more than necessary and the co-conspirators could split the proceeds.
Kundra's speech at the FOSE 2009 summit on Thursday focused on government transparency. He said: "We also want to tap into the ingenuity of the American people, lowering the cost of government operations, engaging citizens, and radical transparency ultimately pulls the citizens of the United States closer to the government."
"Imagine the vast depository of information the federal government has and what people could do if they had access to it -- how it could change the engagement model and help create a more perfect union," he said.
The FBI and U.S. Attorney's office were not immediately available for comment. Kundra's last day was March 4.
During the FBI raid, most of the employees were told to go home, with others segregated into a waiting room, according to a report by WTOP radio.
Update 2:36 p.m. ET: Kundra is not a target of the investigation, a spokeswoman for Washington's mayor said, according to Reuters. The U.S. Attorney's office has told us to expect more information soon.
CNET's Stephanie Condon contributed to this report from Washington, D.C.