It's fall and the leaves aren't the only things starting to drop -- so are more executives who are falling from grace as swashbuckling accounting methods of the 1990s continue to come under the microscope of Uncle Sam.
The latest tech star-turned-federal target Sanjay Kumar, the former leader of Computer Associates International Inc., was charged by federal prosecutors with securities fraud, conspiracy and obstruction of justice in connection with a multibillion-dollar accounting fiasco at the Islandia, N.Y.-based software company. The company's former head of sales was also indicted. "The defendants are accused of perpetrating a massive accounting fraud that cost public investors hundreds of millions of dollars when it collapsed. Then they allegedly tried to cover up their crimes by lying," said Deputy Attorney General James B. Comey, chair of the president's Corporate Fraud Task Force, in a statement.
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The Financial Times described the significance of the case: "The fraud charges, which include accusations against CA, cap the most widespread case of alleged accounting fraud to emerge from the technology bubble."
"The indictment came as CA, one of the country's largest software makers, was also charged with obstruction and securities fraud but avoided an indictment after reaching a deferred-prosecution arrangement with the Justice Department. Mr. Kumar was named, along with former head of sales Stephen Richards, in a 10-count indictment yesterday. Both men face charges including securities fraud and obstruction. They are scheduled to be arraigned today in U.S. District Court in Brooklyn," the Wall Street Journal said, noting that through their lawyers, Kumar and Richards denied any wrongdoing.
• The Financial Times: Former CA Executives Charged With Fraud
• The Wall Street Journal: U.S. Indicts Sanjay Kumar (Subscription required)
The Journal explained Kumar's alleged involvement in the massive accounting shenanigans: "CA, which specializes in back-office software for the computer infrastructures of big corporations, was once one of high technology's hottest success stories, and Mr. Kumar was one of its brightest stars. Then longstanding suspicions of accounting irregularities gelled into a government investigation that began in early 2002 and focused on the backdating of contracts to meet financial projections. Mr. Kumar had worked his way up from software writer to lead the company, and as recently as this spring, remained at the helm, pledging that he was cleaning house and reforming internal governance.
"Unlike other recent cases in which the government charged corporate chieftains with countenancing, or hiding, frauds, the indictment against Mr. Kumar said that he had himself engaged in backdating -- flying to Paris after the end of a quarter to close a whirlwind deal with a reluctant customer; the deal was then credited to the prior quarter," the paper continued. "It also said he promised to reward a sales rep who helped land a crookedly booked deal with a shopping spree."
The New York Post in its coverage of the indictment said the case "could land him in jail for many years." Kumar could get advice from some other fallen leaders tied to stock scandals, including inmate Samuel D. Waksal -- former head of biotech company ImClone -- and domestic diva Martha Stewart, who will go to jail next month.
• New York Post: Kumar Charged, CA Fined $225M
USA Today has more details on the accounting problems at CA. "Prosecutors said the bookkeeping scheme, which they called 'a systematic, companywide practice of falsely and fraudulently recording and reporting' revenue, was intended to pump up reported quarterly earnings to meet analysts' expectations and bolster the company's stock price. Prosecutors referred to one practice as the '35-day month' because company accountants would extend the booking of revenue in the final month of a fiscal quarter days beyond the true end of the month. Three former CA executives have admitted that they fraudulently recorded hundreds of millions of dollars worth of contracts to inflate the company's quarterly earnings," the paper said.
• USA Today: Ex-Computer Associates Execs Face Charges
CA will be under the watchful eye of the Securities and Exchange Commission for a year and a half under a deal with the Justice Department and will have to shell out $225 million to pay back shareholders. The arrangement keeps CA out of the prosecutorial hot seat and settles SEC securities fraud charges, the Associated Press explained.
"The settlement ends a saga in which CA become a symbol of weak corporate governance and suspect accounting in the technology industry. For years CA fended off questions about its accounting, though it eventually agreed to an overhaul of its board that brought in independent directors and closer scrutiny of past practices. That led to the sacking or resignation of most of its senior management, including Mr. Kumar, who resigned under pressure this year. As part of its agreement with regulators, CA said it will dig into its past accounting and try to recover bonuses paid to senior executives as a result of accounting abuses," the Financial Times reported.
