Computer Associates' former CEO Sanjay Kumar and former head of worldwide sales, Stephen Richards, have been charged with securities fraud conspiracy and obstruction of justice, the US government has announced.
At the same time, it was announced CA's former head lawyer, Stephen Woghin, pleaded guilty to similar charges for his role in what the government called a company-wide accounting fraud scheme. The 10-count indictments were returned by a federal grand jury on Friday and unsealed yesterday.
The Department of Justice (DoJ) 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 US Attorney's Office has agreed not to prosecute CA. That deal, however, doesn't protect any individuals from prosecution, said the DoJ.
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 revenue associated with licence agreements, even though those agreements hadn't been finalised and signed during that period.
Kumar and Richards, the indictment says, personally advanced the goals of the 35-day practice. Kumar and former CFO Ira Zar kept CA's books open at the end of fiscal periods in 2000 and sales managers were told by them to finalise and then backdate licence agreements. The government said the extent of the fraud wasn't known until CA filed forms with the SEC Securities that showed $2.2 billion of revenue was booked prematurely.
CA was careful with what is said in response to the various announcements and concentrated on the company's agreements with the government. "With these agreements, CA has taken a critical step in closing this deeply troubling chapter in its history," said chairman Lewis Ranieri. In addition to the $225 million payment, CA agreed to assist government investigators in an attempt to recover compensation from any present or former CA officer or employee involved in improper conduct.
Kumar resigned from CA in June, saying that it had "become increasingly clear to me in the past few days that my continued role at CA is not helping the Company's efforts to move forward". He had attempted to ride the storm out but resigning as CEO in April and creating a new role for himself at the company of "chief software architect" - the same move pulled off by Bill Gates when Microsoft was being investigated for abusing its monopoly.
That failed shift only came a week after another nine CA employees had been fired for their part in pulling off the scam.