They essentially defrauded their chief competitor, i2, so that they could copy their features and reverse engineer their software so Palantir's system could integrate with it.

Read the full complaint here for the juicy details: http://www.scribd.com/doc/36371667/i2-v-palantir-080910

Note that all the Palantir employees involved in this suit are still high-ranking Palantir executives.

There is also the case of the Wikileaks/HBGary fiaso; the main individual involved in that mess is still a high ranking Palantir employee as well.