CA looks to move on after Kumar's indictment

Last week's federal grand jury indictment of former Computer Associates International CEO Sanjay Kumar for allegedly orchestrating widespread accounting fraud at CA left some users concerned, but undeterred about continuing to use the company's software.

"Obviously, we'll watch what happens, but I don't feel the indictments and related news will have any effect on our use of CA software or our confidence about the vendor," said Alain Paquette, manager of distributed servers at Bombardier Aerospace in Dorval, Quebec. The aerospace division of Bombardier uses a variety of desktop, network and server management tools from CA, as well as its help desk software.

Kumar's indictment came on the same day that CA agreed to pay US$225 million to reimburse shareholders for the alleged fraud and to work with the government to help recoup compensation from accused former executives. In return, the U.S. Department of Justice said it won't prosecute CA as long as the company abides by the terms of the cooperation agreement over the next 18 months.

As a result of the deal between the company and the DOJ, "CA will be better off," said Kenneth Pandaleon, a senior network engineer at NBTY, a New York-based maker of nutritional products.

Kumar and former head of worldwide sales Stephen Richards both pleaded not guilty to 10 charges, including securities fraud and obstruction of justice, in U.S. District Court in Brooklyn, N.Y., yesterday, one day after the indictments against them were unsealed. Both men were ordered by the court to post US$5 million bond and to surrender their passports.

Meanwhile, Stephen Woghin, CA's former general counsel, pleaded guilty to similar charges for his role in the alleged accounting scheme, which dates to 1999 and 2000.

Kumar left CA in June, two months after he was ousted from his position as chairman and CEO. The indictment against him charges that under his leadership, CA instituted a systemic practice of falsely recording some software sales within a fiscal quarter, even though the contracts weren't actually signed during the period.

The government claims that Kumar and Richards personally advanced the goals of the accounting practice, which was built around a so-called 35-day month. For example, the indictment says that on July 8, 1999, Kumar was flown on the CA corporate jet to Paris to negotiate a US$32 million software licensing agreement, which was falsely backdated to June 30.

The DOJ said CA has accepted responsibility for the alleged illegal conduct of its former executives as part of the cooperation deal. The company reached a similar agreement with the U.S. Securities and Exchange Commission to settle securities fraud charges that the SEC filed in the Brooklyn court.

"With these agreements, CA has taken a critical step in closing this deeply troubling chapter in its history," Lewis Ranieri, the company's chairman, said in a statement. He added that CA officials "fully support the government's efforts to bring all responsible parties to justice."

IDC analyst Stephen Elliott said the situation at CA is only "pseudo-resolved" because of the 18-month deferral period for possible prosecution of the company. But Elliott said large CA customers shouldn't be concerned about using its products. He added that the agreements with the DOJ and SEC should improve CA's ability to make acquisitions, which have been "put on hold" in recent months because of the federal investigations.

The months of uncertainty also have left CA "a bit frozen internally in terms of making aggressive and imaginative moves in technology," said Rich Ptak, an analyst at Ptak, Noel & Associates in Amherst, N.H. "But they've done a pretty good job overall."

CA, which is being run by interim CEO Kenneth Cron, expects to name a permanent CEO within 30 days. Company officials wouldn't comment on the possibility of layoffs, which was raised by several financial analysts. Thousands of layoffs are "plausible" at CA, according to a report by Friedman, Billings, Ramsey Group in New York.

Still, the indictments of Kumar and Richards aroused the most interest among IT managers.

"If Kumar goes to jail, maybe Martha Stewart can decorate his cell," said Douglas Spindler, president of the San Francisco Networking Technologies Users Group, which includes about 2,500 network and systems managers. "I hope the truth comes out in this whole thing and that it serves as a wake-up call to business."

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