Former CA Chief Is
Sentenced
To 12-Year Prison Term, Fined
By WILLIAM M. BULKELEY
November 3, 2006; Page A3
Former Computer Associates International Chief
Executive Sanjay Kumar, who helped build a software powerhouse only to
embroil it in one of the biggest accounting scandals of the decade, was
sentenced to 12 years in prison and fined $8 million for securities
fraud and obstruction of justice.
The sentencing is the latest in a string of lengthy
prison terms for white-collar criminals partly spurred by a spate of
accounting scandals that lost investors billions of dollars in
stock-market value earlier in the decade. Last month, former Enron Corp.
President Jeffrey Skilling was sentenced to 24 years and four months in
prison, while former WorldCom Inc. chief Bernard Ebbers is serving 25
years in prison.
![[Sanjay Kumar]](HC-FT743_Kumar_20051025193326.gif)
Still, the judge overseeing the case in a Brooklyn,
N.Y., court had the option of sentencing him to up to a lifetime in
prison. Attorneys for Mr. Kumar didn't say whether they would try to
appeal the sentence.
Mr. Kumar's former company, now known as CA
Inc., continues to grapple with the fallout from the accounting scandal.
Late yesterday afternoon, CA said it expects earnings per share to be
below its original outlook as a result of restructuring costs. CA shares
fell 7.4% in after-hours trading.
Mr. Kumar pleaded guilty in April to charges that he
created what prosecutors called "35-day months" to book extra revenue
after a quarter ended and a subsequent cover-up that included offering a
no-work contract to a potential witness to keep him quiet. Under the
fraud, the company misreported some $2.2 billion in revenue, according
to federal securities officials.
"I stand before your honor today to take full
responsibility for my actions," Mr. Kumar, who is 44 years old, told
U.S. District Court Judge I. Leo Glasser. "I know that I was wrong and
there's no excuse for my conduct." Mr. Kumar declined to comment after
the sentencing, except to say he was "ready to move on."
COURT DOCUMENTS
![[See court documents]](it_gavel06292005183453.gif) 1
Born in poverty in Sri Lanka, Mr. Kumar emigrated to
the U.S. with his family and by the age of 38 rose to chief executive of
the world's second-biggest maker of mainframe-computer software, getting
stock awards that were worth hundreds of millions of dollars at one
time.
Judge Glasser said that under federal sentencing
guidelines he could have given Mr. Kumar a lifetime sentence. But he
said such a long sentence would "shock the conscience of this court."
Sentencing factors included the eight-count indictment to which he
pleaded guilty and the economic harm of his actions, which Judge Glasser
said exceeded $400 million.
Mr. Kumar will be eligible for time off for good
behavior that could reduce his sentence by 15%, meaning that he will
serve a minimum of just over 10 years. Parole isn't a part of the
federal penal system.
Judge Glasser postponed sending Mr. Kumar to a
minimum-security federal prison until the end of February. He said he
wants to rule first on the amount of restitution shareholders and other
victims should get from Mr. Kumar. Judge Glasser said he might change
the fine depending on whether funds are needed for restitution. It isn't
clear what Mr. Kumar's current financial situation is.
Mr. Kumar's attorneys had argued for a more lenient
sentence on the grounds that CA, based in Islandia, N.Y., is still in
business, unlike Enron and WorldCom, which filed for bankruptcy
protection. CA agreed in 2004 to pay $225 million in restitution and
operate under a special examiner's supervision to avoid prosecution
The defense said that almost all the revenue that CA
booked early was real revenue that should have been accounted for a few
weeks later. They noted that Mr. Kumar had shown contrition by pleading
guilty before a trial started.
U.S. prosecutor Eric Komitee said CA represented the
"most blatant example" among recent corporate scandals of "a sitting CEO
directing a comprehensive scheme" to obstruct justice.
Judge Glasser said "securities fraud...did violence to
the legitimate expectation of investors." He said it was clear that Mr.
Kumar had falsified results to fulfill Wall Street expectations for
earnings and that the stock would have plunged if the bookings had been
delayed to the next quarter.
Several other executives, who pleaded guilty and
cooperated with prosecutors, await sentencing. Among them are CA's
former general counsel and its former chief financial officer.
CA Inc. said net income for its second quarter ended
Sept. 30 rose to $53 million, or nine cents a share, from $46 million,
or eight cents a share, from a year earlier. The company said its
earnings excluding restructuring costs remained flat at 25 cents a
share.
CA said revenue rose to $996 million from $950 million.
CA sees total restructuring charges of $150 million,
most of which are to be recognized in fiscal 2007, and a reduction in
work force of 1,400 positions, including 300 related to divestiture of a
joint venture. The company also expects to eliminate an additional 300
positions through attrition.
Write to William M. Bulkeley at
bill.bulkeley@wsj.com8
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