The CA Indictment Trail Gets Longer

By John Pallatto  |  Posted 2004-09-23 Print this article Print

Opinion: The indictment trail has reached right up to former Chairman and CEO Sanjay Kumar in the investigation of accounting and securities fraud at Computer Associates. Will there be more?

Rarely in the history of American business has a major a U.S. corporation had to make such sweeping admissions of management misconduct and offer such massive levels of investor restitution as Computer Associates has.

The only factor that separates CA from the egregious likes of bankrupt Enron is that its still a going concern and has assets that it can offer up to compensate investors who were fleeced.

But its certainly a fair question whether any company deserves to stay in business that systematically deceived investors to the tune of $2.2 billion in prematurely booked revenue during its fiscal 2000 and 2001.

The only thing that has allowed the company to redeem itself in some measure is the belated effort of CAs board of directors to make a clean breast of the malfeasance. But where was the board when CAs top management was booking revenue on the "35-day month" accounting plan?

It was managements policy to extend the last month of the quarter so it could book revenue from software sales contracts that hadnt actually been signed, enabling the company to report revenue that met or exceeded the estimates of Wall Street analysts.

No board of directors should allow senior management to pull the wool over their eyes. Its hard to believe that at least some of the directors at the time didnt have some inkling that management was puffing up the financial reports.

But then its in top managers interest to only tell the board members what they want them to know and to keep them in the dark about what is really going on. They only look like fools and dupes when the chief executives are unmasked as the crooks that they truly are.

The cost of trying to set things right has been staggering. Not only has CA agreed to pay $225 million in restitution to current and former investors, but the company has also issued 5.7 million shares of CA stock at a cost of $163 million to compensate investors.

The cost in ruined careers and personal reputations has also been high. Former Chairman Sanjay Kumar has joined the growing roll of former CA executives who have either been indicted or pleaded guilty to securities fraud charges. Kumar resigned as CAs chairman and CEO in April as the investigation continued, but he was invited to stay on by the board as CAs chief software architect.

However, Kumar resigned from the company in June as the federal and CAs internal investigations of the companys accounting practices progressed.

Next Page: The growing lists of indictments and guilty pleas.

John Pallatto John Pallatto is's Managing Editor News/West Coast. He directs eWEEK's news coverage in Silicon Valley and throughout the West Coast region. He has more than 35 years of experience as a professional journalist, which began as a report with the Hartford Courant daily newspaper in Connecticut. He was also a member of the founding staff of PC Week in March 1984. Pallatto was PC Week's West Coast bureau chief, a senior editor at Ziff Davis' Internet Computing magazine and the West Coast bureau chief at Internet World magazine.

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