CA's Mea Culpa

Settles with the SEC and DOJ over accounting, but two ex-execs face 10-count indictments

September 23, 2004

2 Min Read
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Computer Associates International Inc. (CA) (NYSE: CA) has finally drawn a line under the accounting scandal that has dogged the company for the last 12 months. But though it's reached a settlement with the Department of Justice (DOJ) and Securities and Exchange Commission (SEC), the fallout continues.

The companys former CEO Sanjay Kumar and one-time head of worldwide sales Stephen Richards have been indicted on securities fraud conspiracy and obstruction charges, it was announced today. Richards was also charged with one count of perjury, and Kumar with one count of making false statements to law enforcement officers.

If convicted on all counts, the former execs each face a maximum prison sentence of 100 years.

According to the indictment, in fiscal year 2000, Kumar and Richards allegedly took part in a company-wide accounting fraud known as the “35-day month." The goal of the scheme was to permit CA to report that it had met or exceeded its projected quarterly revenue and earnings when it had not, according to the DOJ.

Earlier today, Stephen Woghin, CA’s former general counsel and senior vice president, pleaded guilty to securities fraud conspiracy and obstruction of justice charges, and now faces a maximum sentence of 25 years. Four other former CA execs had previously pleaded guilty to charges arising out of the investigation.In a statement released earlier today, CA acknowledged corporate wrongdoing during a period between January 1998 and September 2000 which resulted in “improper accounting practices and subsequent mistreatment of revenue.” It also accepted responsibility for "impeding and failing to cooperate" with the SEC and government investigation.

"Some former members of CA's management management engaged in illegal activity," says CA chairman Lewis Ranieri. "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."

To make amends, the company has agreed to establish a $225 million "restitution fund" to compensate shareholders for the losses caused by the misconduct of certain former executives.

The Islandia, N.Y.-based company has also agreed to assist government investigators in obtaining compensation from any current or former employees who engaged in improper conduct. Additionally, CA promised to strengthen its corporate governance, management team, and financial reporting processes.

CA execs will be keen to see the end of a period that has seen the software vendor hitting the headlines for all the wrong reasons. This includes boardroom changes, resignations, and financial upheaval -- all played out under the constant glare of media scrutiny (see CA Names Temp Chief, CA CEO Resigns, and CA Delays Final Results).The company is not completely out of the woods yet. As part of today’s settlement, if CA fails to comply with the terms of the agreement after 18 months, the organization could still be prosecuted by the DOJ.

— James Rogers, Site Editor, Next-gen Data Center Forum

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