As the government continues preparing its case against the accused ringleaders of Computer Associates International's (CA's) "35-day month" accounting fraud, prosecutors have filed a superseding indictment filling in more details of ex-Chief Executive Officer Sanjay Kumar's alleged crimes.
A number of former CA officials, including the company's ousted chief financial officer and general counsel, have pleaded guilty to charges connected to the fraud, which the company has confessed. The government is preparing to go to trial on charges against two of the alleged masterminds, Kumar and CA's former worldwide sales head, Stephen Richards. Both have pleaded not guilty.
In the revised indictment, the government piles on more evidence that Kumar and Richards knowingly distorted CA's accounting and took steps to hide their actions.
In early 2000, CA signed a US$44.5 million license deal with a "nearly insolvent" customer in which it also had an ownership stake, then backdated the contract so it could be recorded in the prior quarter, according to the indictment. The next quarter, expecting that it would not be able to collect on the contract, CA reversed the revenue in its internal records but did not publicly restate its results, the indictment says.
It also accuses Kumar of authorizing a US$3.7 million consulting contract in early 2003 that essentially amounted to hush money for an unnamed executive at a CA customer company who knew of CA's accounting improprieties. This executive had arranged a US$27 million license contract with CA in March 2000, but as part of the deal, CA spent a similar amount on software from the executive's company, according to the indictment. Neither software package was ever used, making the deal a "revenue swap" that cannot legally be treated as a sale. When the unidentified executive threatened to alert government investigators to the arrangement, Kumar conspired with CA's general counsel to arrange the consulting payoff, the indictment says.
The defense and prosecution are currently in the discovery period and are scheduled to meet with the case's presiding judge, Judge I. Leo Glasser of the U.S. District Court for the Eastern District of New York, in mid-July for a status conference.
Sentencing hearings for the CA executives who have pleaded guilty have been adjourned until after the trial against Kumar and Richards commences, because several of those executives are expected to testify at the trial, according to Assistant U.S. Attorney Eric Komitee.
CA reached a deferred prosecution agreement with the government in September, under which it agreed to pay US$225 million to a restitution fund to compensate victims of its fraud and to take various steps to strengthen its corporate governance and cooperate with government investigators. If after 18 months CA is deemed to have complied with its obligations, the U.S. Attorney's Office will seek to dismiss charges against the company.