Former CA executives charged with fraud
By Richard Waters in San Francisco
Published: September 22 2004 18:10 | Last updated: September 22 2004 19:23

US regulators on Wednesday levelled fraud charges against three former executives of Computer Associates, including Sanjay Kumar, the US software company's former head.

The company is also to widen its own investigation into past accounting malpractice in an effort to reclaim some of the $1bn (£560m) in bonuses that were paid in the late 1990s to Mr Kumar and two other men who built the US software company, according to a person close to the group.

The fraud charges, which include accusations against CA, cap the most widespread case of alleged accounting fraud to emerge from the technology bubble.

According to the Securities and Exchange Commission, CA mistated $3.3bn of revenues between 1998 and 2001, $1.1bn more than it had already reported.

CA on Wednesday agreed to pay $225m in restitution to shareholders and agreed to closer outside scrutiny of its accounting and corporate governance to avoid immediate criminal indictment. The Departmnet of Justice has deferred its prosecution of CA for 18 months, giving the company room to escape a criminal case provided it meets the terms of its deal with the federal prosecutors.

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.

This includes an investigation of the events surrounding the $1bn in bonuses that were paid in 1998 to Mr Kumar, CA founder Charles Wang and Russell Arztz, another senior executive.

The bonuses provoked protests, and the three eventually to returned part of the money to settle a shareholder lawsuit.

The SEC accused Mr Kumar, along with Stephen Richards, CA’s former head of sales, and Steven Woghin, former general counsel, of fraudulent accounting and obstructing investigators.

To meet stock market expectations, CA kept its books open at the end of each quarter to include sales made after the periods had ended, the SEC said.

© Copyright The Financial Times Ltd 2004.

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