Ex-officials at software firm may have to repay millions

U.S. lawsuits allege fraud at Computer Associates

September 24, 2004|By Pradnya Joshi | Pradnya Joshi,NEWSDAY

Former executives at Computer Associates International Inc., including former chief executive Sanjay Kumar, could have to pay back hundreds of millions of dollars in pay, bonuses and stock gains under the lawsuits that the government filed yesterday.

The Justice Department and the Securities and Exchange Commission will still have to prove that corporate executives were directly responsible for the accounting fraud and misstatements in revenues. But armed with new laws and cooperation from the new management at CA, some experts think that prosecutors will have strong ammunition in getting damages from former executives.

How much the former executives would pay back remains to be seen. But Kumar was given nearly $330 million in salary, bonuses, stock awards and option gains from 1998 through 2001, which spans the time that CA now acknowledges the company had misstated its financial figures. Former head of sales Stephen Richards made more than $3 million during the period in question, according to a shareholder lawsuit filed this year. And many other executives also earned millions in pay and bonuses based on questionable numbers.

Kumar, 42, pleaded not guilty to federal securities fraud and other charges yesterday in the multibillion-dollar accounting scandal at the business software maker. He was charged in a 10-count indictment Wednesday with obstruction of justice, conspiracy to obstruct justice and making false statements to law enforcement officers.

Richards also pleaded not guilty to the charges in the indictment.

Both men were ordered to post $5 million personal recognizance bonds, surrender their passports and limit their travel to the United States. Their next court date was set for Nov. 23.

The SEC lawsuit asks that Kumar and Richards give up "all the ill-gotten gains" they received during the period in question as well as penalties and interest.

Other shareholder lawsuits are seeking even more. A lawsuit filed in federal court in New York in June by Dallas-based Ranger Governance against 12 former CA officers alleges that executives got more than $1.1 billion in undeserved compensation. The suit notes that the fraudulent figures led to the $1.1 billion stock grant paid to Kumar, and CA co-founders Charles Wang and Russ Artzt in May 1998. That award was later reduced.

While declining to say whether investigators were targeting that bonus specifically, CA Chairman Lewis Ranieri said of past payments, "Everything is on the table. The government will pursue this wherever it takes them."

Legal experts note that the government has new legal tools to win back money from executives who allegedly committed fraud, especially under the Sarbanes-Oxley Act of 2002. "It's very, very Draconian," said Lance Myers, a partner with Holland & Knight in Manhattan. "Every violation carries very high penalties."

CA's new management said it is fully cooperating with the government to win back any and all of the money paid to Kumar and others. The company itself is not planning to file any lawsuits but is providing the government with any documents it needs to prove the case, officials said.

Newsday staff writer Mark Harrington and the Associated Press contributed to this article. Newsday is a Tribune Publishing newspaper.

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