Accounting & Tax

New Woes for Kumar, Computer Associates

An unnamed client of the software company allegedly warned the former CEO of ''future consequences'' if Computer Associates didn't buy his silence ...
Stephen TaubJune 30, 2005

Two former top officials of embattled software maker Computer Associates International Inc. arranged to pay hush money to keep a bogus deal quiet, according to a revised indictment filed this week.

Newsday, citing court papers, reported that in February 2003 then-CEO Sanjay Kumar was contacted by a client in Asia. The client — not named in the indictment — warned of “future consequences” if Computer Associates didn’t buy his silence over a swap deal he made as a “favor” to CA. Three years earlier the client had signed a $27 million licensing agreement with the Islandia, New York-based company; at the same time, Newsday added, CA agreed to buy an equal value of software from the client’s company.

The court papers characterized the transaction as an improper swap that had no actual business purpose other than to boost CA’s revenue. “Neither company used or sold the software that it licensed or purchased from the other,” the papers reportedly allege.

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According to Newsday, Kumar instructed then-general counsel Steve Woghin to “solve the issue”; Woghin and an unnamed CA official flew to Hawaii to meet with the client, who threatened to report his assertions to authorities. Kumar then allegedly authorized the software company to enter a consulting agreement with the client and pay him $3.7 million, “despite the fact that CA did not need, and never used, the consulting services,” the indictment reportedly states.

Last year Woghin pleaded guilty to conspiracy to commit securities fraud and obstruction of justice, reported Newsday. Kumar and former global sales chief Stephen Richards were charged on 10 counts in the original indictment last September. The new indictment handed up by Roslynn Mauskopf, U.S. Attorney for the Eastern District of New York, adds one charge each against Kumar and Richards.

In prepared remarks, Computer Associates spokeswoman Shannon Lapierre said, “Some former members of CA’s management engaged in serious wrongdoing, and we fully support the government’s efforts to bring wrongdoers to justice.”

At the time of the original indictments, Computer Associates agreed to pay $225 million to settle investigations by the Department of Justice and the Securities and Exchange Commission, which had charged the company with inflating revenues by $2.2 billion.

In a separate announcement this week, Computer Associates disclosed in a regulatory filing that it has two material weaknesses in its internal control over financial reporting. The weaknesses concern the company’s restatement of its financial results and a deficiency in maintaining an effective control environment in its Europe, Middle East, and Africa operation, according to the company.

“Upon identifying these control deficiencies, we have acted swiftly and decisively to implement the changes necessary to correct the problems,” said chief financial officer Bob Davis, in a press release. “We have made substantial progress and will work diligently over the coming months to complete the task.”