Jailed Ex-CEO Kumar
Implicates Others in Cover-Up
By WILLIAM M. BULKELEY
September 4, 2008; Page B9
Sanjay Kumar, the
incarcerated former chief executive of Computer Associates International
Inc., claims that several current and former directors were aware of the
company's fraudulent accounting practices and helped hide the
information from government investigators.
Mr. Kumar made the
allegations in an affidavit obtained by lawyers for shareholders who are
suing over the improper accounting. None of the officials, including a
former U.S. Senator who remains a company director, have been charged
with wrongdoing, and all denied the allegations.
Computer Associates, based
in Islandia, N.Y., was embroiled in one of the largest accounting
scandals of the past decade, eventually admitting to some $2.2 billion
in misstated revenue.
In 2004, the company, now
called CA Inc., paid $225 million into a government-ordered
restitution fund for shareholders. Since then, eight former CA
officials, including Mr. Kumar, pleaded guilty to federal charges
related to CA's accounting. Mr. Kumar is serving a 12-year term in
federal prison in New Jersey.
Mr. Kumar's sworn
statement, filed Aug. 27 in U.S. District Court in Brooklyn, claims that
Lewis Ranieri, a former Salomon Brothers vice chairman who served as
CA's board chairman until he resigned last year, had been aware of the
practices as early as 2003 and "took steps to conceal the facts" from
investigators.
The statement says that
Mr. Ranieri instructed Mr. Kumar in 2003 not to disclose to the new
chair of the board's audit committee past accounting practices because
he "would have a heart attack."
Mr. Kumar also alleges
that Alfonse D'Amato, a former U.S. Senator, who has been a director
since 1999, was aware of the practices and hid them.
In the statement, Mr.
Kumar says that Mr. D'Amato instructed him to be careful to avoid
implicating company founder Charles Wang in any of the accounting
issues. Mr. Kumar says that, from 1999 through 2003, Mr. Wang directed
payments of $390,000 from Smile Train, a charity he founded to repair
cleft palates, to Mr. D'Amato's consulting company, Park Strategies LLP.
Mr. Kumar says the payments were designed to replace fees that Mr.
D'Amato's consulting firm had received before he became a director. The
company would have had to disclose such fees in securities filings.
A spokesman for Messrs.
Ranieri and D'Amato said Mr. Kumar "from jail continues to be a stranger
to the truth."
Mr. Kumar's affidavit also
says that Russell Artzt, a co-founder of the company, former director
and current vice chairman, had been aware of the accounting practices
and urged Mr. Kumar to keep quite about them in front of investigators
because he expected Mr. D'Amato would "get this fixed." Mr. Artzt, in a
statement, said it was "completely false" that he was aware of the
accounting issues.
Mr. Kumar reiterates
claims he had previously made that Mr. Wang "personally directed" Mr.
Kumar and other CA executives to extend the closing of the company's
quarterly accounts for five days or more in order to get time to bring
in additional contracts and meet Wall Street earnings expectations.
Prosecutors called these extensions "35-day months."
Mr. Kumar, who pleaded
guilty to accounting fraud and obstruction charges in 2006, had given
testimony about Mr. Wang to a committee formed by CA to investigate
internal wrongdoing. Following that report, CA accused Mr. Wang of
participating in fraudulent accounting during the 1980s and 1990s. The
company said it would try to recover damages from Mr. Wang.
On Wednesday, a spokesman
for Mr. Wang said the CA founder stood behind a previous statement,
pledging to "vigorously defend my good name and fight any and all
efforts to place the crimes of Kumar and his management team at my
feet."
Lawyers for investor Sam
Wyly, who acquired stock in CA in 2000, obtained Mr. Kumar's affidavit
in connection with lawsuits on behalf of CA shareholders.
William A. Brewer, a
lawyer with Bickel & Brewer who represents Mr. Wyly, said he hoped the
new information would persuade U.S. District Court Judge Thomas Platt to
reopen a previously settled class-action case and expedite the handling
of two other suits.
In response to questions
from The Wall Street Journal, CA put out a statement that said a
directors' committee investigated the accounting matters, interviewing
90 employees and outside advisers, and directed the company to seek
damages from Messrs. Wang and Kumar. The investigation concluded that
other directors weren't liable. "In a matter of this complexity, one
cannot draw conclusions from the uncorroborated recollections of a
single individual," the company said.
Write to William M.
Bulkeley at
bill.bulkeley@wsj.com1
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