Former Computer Associates International Inc. CEO Sanjay Kumar pleaded not guilty today to charges of securities fraud and obstruction of justice stemming from a two-year investigation into accounting fraud at the software company.
Former Computer Associates International Inc. CEO Sanjay Kumar pleaded not guilty today to charges of securities fraud and obstruction of justice stemming from a two-year investigation into accounting fraud at the software company.
Kumar’s arraignment in U.S. District Court in Brooklyn, N.Y., came a day after the company agreed to pay $225 million to past and current shareholders to settle charges the company improperly booked $2.2 billion in revenue.
Stephen Richards, CA’s former head of worldwide sales, also pleaded not guilty today to fraud and obstruction charges.
The two former executives were charged in a 10-count indictment returned by a grand jury on Friday and announced yesterday by Deputy Attorney General James B. Comey, FBI Director Robert Mueller and U.S. Attorney Roslynn R. Masukopf during a Washington news conference.
Kumar denied any wrongdoing in a statement issued by his attorneys and said he expects to be exonerated.
In addition, CA’s former general counsel and senior vice president, Stephen Woghin, pleaded guilty yesterday to similar charges for his role in what the government called a companywide accounting fraud scheme.
Also yesterday, the Department of Justice announced that CA has been charged with, and accepted responsibility for, the illegal conduct of its former executives and has agreed to pay $225 million to compensate victims of the fraud, among other reparations. If CA abides by the terms of the agreement after an 18-month period, the U.S. attorney’s office has agreed not to prosecute CA. That deal, however, doesn’t protect any individuals from prosecution, the DOJ said in a statement.
Comey said the defendants are “accused of perpetrating a massive accounting fraud that cost public investors hundreds of millions of dollars when it collapsed.” The defendants “allegedly tried to cover up their crimes by lying,” he said.
The indictment lays out the so-called “35-day month” as the centerpiece of the accounting fraud scheme. According to the government, CA engaged in a systematic practice of fraudulently recording and reporting within a fiscal quarter revenue associated with license agreements, even though those agreements hadn’t been finalized and signed during the period.
Kumar and Richards, the indictment says, personally advanced the goals of the 35-day practice. Kumar and former CA Chief Financial Officer Ira Zar kept CA’s books open at the end of fiscal periods in fiscal 2000, and sales managers were told by them to finalize and then backdate license agreements. The government said the extent of the fraud wasn’t known until April 26, when CA filed forms with the U.S. Securities and Exchange Commission that showed $2.2 billion of revenue was booked prematurely.
CA focused on the agreements reached with DOJ and SEC officials in a statement and during an afternoon Web conference. “With these agreements, CA has taken a critical step in closing this deeply troubling chapter in its history,” said CA Chairman Lewis Ranieri. In addition to the $225 million payment, CA agreed to actively assist government investigators in an attempt to recover compensation from any present or former CA officer or employee involved in improper conduct at the company.
Prosecution of the company was deferred for 18 months, and may be dismissed if CA is found to have complied with the terms of the agreement, CA officials said.
That deferral period caused one analyst, Stephen Elliott at Framingham, Mass.-based IDC, to note that the situation with CA is only “pseudo-resolved” and could affect whoever CA names as permanent CEO.
Elliott said large CA customers shouldn’t be concerned about using CA products and added that the agreement should improve CA’s ability to acquire smaller companies to provide customers with new and innovative technologies. The uncertainty of a federal investigation has “put on hold” CA’s acquisition ability in recent months, Elliott added.
Kumar and Richards couldn’t be immediately reached for comment this afternoon.
Reuters contributed to this report.
