Applications & OS News
Former CA CEO Sanjay Kumar Indicted
The charges were unsealed Wednesday, after the company itself agreed to pay $225 million to shareholders as part of a settlement that allows it to defer criminal prosecution. That agreement also settles securities fraud charges brought by the Securities and Exchange Commission.
A 10-count grand jury indictment returned last Friday also charges Kumar with conspiracy to obstruct justice and levies the same charges against Stephen Richards, the company's former head of worldwide sales.
Under the highly unusual deal to defer prosecution, an outside monitor will track Computer Associates' financial reporting for the next 18 months.
Deputy Attorney General James Comey said the deferral will "give the company the opportunity to demonstrate that it has a culture that can be saved. Our focus is not on doing harm for harm's sake."
"If they don't take those steps, the consequences will be severe," Comey added.
Computer Associates chairman Lewis Ranieri called the agreements "a critical step in closing this deeply troubling chapter" in the company's history.
"Some former members of CA's management engaged in illegal activity," Ranieri said. "Violations of law and ethical standards, including securities fraud, obstructing a government investigation, and lying to CA's board of directors and CA's lawyers cannot be condoned. We fully support the government's efforts to bring all responsible parties to justice."
The company had earlier offered to settle the investigation for $10 million.
Also Wednesday, the company's former general counsel, Steven Woghin, pleaded guilty in federal court to conspiracy to commit securities fraud and obstruction of justice.
"Your honor, I am ashamed to be standing here today," he said. "It is entirely inconsistent with my behavior through a 30-year legal career."
Computer Associates, the world's fourth-largest software maker, restated its financial results from 2000 and 2001 in April to reflect $2.2 billion in revenue that was improperly booked.
Prosecutors referred to one practice as the "35-day month" because company accountants would extend the booking of revenues in the final month of a fiscal quarter days beyond the true end of the month.
"In many ways, this scheme is emblematic of the schemes of the late 1990s, motivated by the overwhelming desire to create the illusion of success," Comey said.
Three former executives admitted in April that they fraudulently recorded hundreds of millions of dollars worth of contracts in a conspiracy to inflate quarterly earnings. They entered guilty pleas under cooperation agreements that prosecutors called an important move toward indicting other high-ranking company executives.
Former chief financial officer Ira Zar, the third-highest-ranking executive after former chairman Charles B. Wang and Kumar, pleaded guilty to securities fraud and conspiracy to commit securities fraud and obstruct justice.
The company agreed Wednesday to help the government retrieve any compensation and bonuses found to be awarded based on fraudulent financial results. Three executives, including Wang and Kumar, split stock bonuses worth $1.1 billion in 1998.
According to the charges against him, Zar regularly met with high-level executives whom prosecutors described as Executive No. 1 and Executive No. 2. Zar conspired with the two to backdate contracts to boost the previous quarter's earnings, according to the charges.
Prosecutors have declined to comment on the identities of those two executives.
Along with Zar, former senior vice president of finance and administration David Kaplan and former vice president of finance David Rivard pleaded guilty in April to conspiracy to commit securities fraud and obstruct justice.
Rivard and Kaplan faced maximum sentences of 10 years in prison but likely will be sentenced to far less because they cooperated with authorities. Zar faced a maximum of 20 years in prison but also is likely will be sentenced to less.
Woghin's sentencing was set for Dec. 10. He could get up to five years on the first count and up to 20 years on the second. Both counts are subject to federal sentencing guidelines.
The SEC also filed actions in April against Zar, Rivard and Kaplan, charging them with committing accounting fraud. The three struck separate deals agreeing to disgorge the proceeds of their crimes and never again serve as officers of publicly traded companies.
The SEC said that during the company's 2000 fiscal year, Computer Associates "prematurely recognized" more than $1.4 billion in revenue from at least 116 contracts that had not yet been signed.
The Long Island, N.Y.-based company said it had billions of dollars in annual revenue in the late 1990s. Reported revenues plunged after the company changed its accounting practices in the face of increased outside scrutiny.
Computer Associates said a company audit was to be completed soon and another restatement of prior financial statements would be done if required.
"Although the company is unable to predict the scope or outcome of the continuing government investigation, it is possible that it could result in the institution of administrative, civil injunctive or criminal proceedings, including charges against the company and other officers of the company," Computer Associates said.
The company's shares fell 17 cents to $25.51 in afternoon trading on the New York Stock Exchange.
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