Former CA CEO Sanjay Kumar gets 12 years in prison

Sanjay Kumar, former CEO at CA, is sentenced to 12 years in prison and an US$8 million fine on securities fraud charges

Sanjay Kumar, the former CEO of CA, has been sentenced to 12 years in federal prison for his role in a financial scandal at the company that prematurely reported $US2.2 billion in software licensing revenue between 1999 to 2000.

Kumar, who resigned from CA in June 2004 after the scandal unfolded, was also hit with an $US8 million fine by Judge I. Leo Grasser in US District Court in Brooklyn, NY, at his sentencing.

Kumar would remain free on bond until Grasser decides the issue of restitution to the victims of the accounting scandal, a spokesperson in the US Attorney's Office in Brooklyn said.

The prison where Kumar will serve his sentence has not yet been announced. A recommendation will be made by the court and a final decision will be made by the US Bureau of Prisons.

"The integrity of US financial markets depends on corporate executives accurately reporting their companies' performance to the investing public," US Attorney, Roslynn R. Mauskopf, said in a statement. "In violation of the shareholders' trust and the federal securities laws, [Kumar] persistently misrepresented the company's financial position and orchestrated a pervasive cover-up scheme. The sentence imposed today sends the message that accounting fraud is a serious crime and that obstructing justice will inevitably make things worse, not better, for defendants under investigation."

Assistant director-in-charge of the FBI's New York Field Office, which assisted in the CA accounting investigation, Mark J. Mershon, said in a statement that the sentence fit Kumar's crimes.

"Today, justice looked Mr. Kumar in the face and held him accountable for presiding over one of the largest accounting fraud schemes on record," Mershon said. "His deliberate misstatements of over $US2 billion of Computer Associates' revenue caused an elevation of the company's stock price, but when the scheme collapsed, no one fell harder than the investors who made good faith purchases of the company's stock."

The losses to CA's shareholders from the illegal accounting actions amounted to more than $US400 million, according to the government. The defendants admitted that they inflated the quarterly revenue and earnings of the company by keeping its books open past their normal quarterly ending dates. That made it look like the company had met or exceeded its quarterly revenue projections, when in fact the revenue had actually fallen short of those targets. Kumar pleaded guilty in April to all eight federal charges against him, including securities fraud, obstruction of justice and perjury.

He could have received a maximum of 90 years in prison based on the statutory maximums under the law, the US Attorney's Office spokesperson said. CA's former worldwide sales chief, Stephen Richards, also pleaded guilty to identical charges in April and is still awaiting sentencing. His sentence date had yet to be set, the spokesperson said.

Kumar and Richards were charged with prematurely reporting $US2.2 billion in revenue for licensing agreements during fiscal quarters in which the deals had not yet been finalised, according to the government. The government's indictment asserted that the two men knowingly distorted CA's accounting and took steps to hide their actions.

In early 2000, for instance, CA signed a $US44.5 million license deal with a "nearly insolvent" customer in which it also had an ownership stake. It then back-dated the contract so it could be recorded in the prior quarter, according to the indictment. In 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.

Kumar was also accused of authorising a $US3.7 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. According to the indictment, this executive had arranged a $US27 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. Neither software package was ever used, making the deal a "revenue swap" that can't 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 said.

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