Ex-software firm officials charged in securities fraud

Computer Associates to pay $225 million fine for improper accounting

September 23, 2004|By Mark Harrington and James Toedtman | Mark Harrington and James Toedtman,NEWSDAY

NEW YORK - Federal prosecutors charged former Computer Associates Chairman and Chief Executive Sanjay Kumar and a former sales executive yesterday with 10 counts each of securities fraud and obstruction of justice, as the company reached a multimillion-dollar agreement aimed at dismissal of corporate criminal charges.

In a dizzying day of developments in the two-year-old case, a grand jury handed up indictments of Kumar and his one-time top lieutenant, former Executive Vice President Stephen Richards, saying they masterminded a scheme to prematurely book sales at the Long Island software company to the tune of $2.2 billion.

Both men are scheduled to be arraigned in U.S. District Court in Brooklyn this morning. Through their attorneys, both men denied any wrongdoing.

Meanwhile, the company's one-time top lawyer, former general counsel Steven Woghin, pleaded guilty yesterday to securities fraud and obstruction of justice charges. He could be sentenced to 25 years in prison.

The company agreed to a laundry list of new controls and measures as part of a deferred prosecution agreement that includes a $225 million fine and the hiring of an independent monitor for at least 18 months.

In a conference call yesterday, Computer Associates' chairman, Lewis Ranieri, expressed contrition.

"CA accepts responsibility for the improper accounting practices and misstatement of revenue from Jan. 1, 1998, through Sept. 30, 2000, and for impeding and failing to cooperate with the Department of Justice and the SEC investigations," he said. "This conduct was wrong."

Kumar, who left Computer Associates in June after 17 years at the company, is expected to plead not guilty today.

In a statement, Kumar denied any wrongdoing, and his attorney, Jack Cooney, said he "expects to be exonerated of all charges." Rather than obstruct the federal probes, Kumar recommended the hiring of outside law firms to uncover the wrongdoing, the statement said, and he pushed for the release of documents and employee cooperation.

Richards' attorney, David Zornow, accused the government of having "overreached in this case." He said Richards' duties were "selling the company's software," not finance or sales accounting functions. "Mr. Richards vigorously denies any wrongdoing and is confident he will be vindicated at trial."

But Deputy Attorney General James Comey, in a news conference in Washington, painted a far different picture.

"The investigators in this case went up against highly sophisticated and allegedly corrupt corporate executives who used every means at their disposal to delay, deceive and derail the government's investigation," Comey said.

On July 8, 1999, according to the indictment, Kumar took the company's jet to Paris, where he secured quick agreement on a $32 million license. Officials backdated the contract to June 30, 1999, and directed $19 million as revenue for the quarter that had closed eight days earlier. "After he got home, Kumar boasted about how his Paris caper had saved the quarter for Computer Associates," Comey said.

"The Computer Associates story also includes a failed cover-up, replete with lies to government investigators, lies under oath, and the use of attorneys to obstruct and impede the government's investigation of this fraud," Comey said.

Kumar and Richards were each charged with misleading corporate lawyers and board audit committee lawyers, with the knowledge that their statements would be relayed to investigators, further delaying the investigation.

All of the $225 million in fines will be paid by Computer Associates directly to shareholders, current and past, in three installments of $75 million over 18 months, with an outside monitor overseeing the payments.

Authorities acknowledged the rare use of the deferred prosecution and outside-monitor mechanism, saying CA received special treatment because of its cooperation with investigators.

"Today's agreement with Computer Associates shows that the government expects companies to take affirmative, proactive steps to make sure their employees act ethically, work in a healthy culture and comply with the law. And if they don't take those steps, the consequences will be severe," Comey said. "We have no interest in swinging at the wrong door and knocking down thousands of innocent employees."

At headquarters, executives portrayed Computer Associates as a changed company eager to have this difficult chapter behind them.

"We are a much different company than we were four years ago, when these improper practices occurred," said interim Chief Executive Ken Cron. "And we are a much different company than we were even just a year ago, when the board of directors authorized its audit committee to investigate these matters. Change will continue at CA, I can guarantee that."

In addition to committing itself to cooperate with continuing government requests for information, the company agreed to elect two new independent board members by December 2005, implement management, accounting and information system controls, and pursue gains of past executives who benefited from the wrongdoing.

Comey said the investigation is continuing.

Woghin's guilty plea means that he will cooperate with the government probe. Choking back tears in an emotional pleading before U.S. District Judge I. Leo Glasser, Woghin said, "Your honor, I am ashamed to be standing here today," and called his actions "entirely inconsistent with my behavior during my 30-year legal career."

Newsday is a Tribune Publishing newspaper.

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