Computer Associates International, Inc. said yesterday that it would pay $225 million to settle investigations by the Department of Justice and the Securities and Exchange Commission. The software company had been charged with inflating company revenues by $2.2 billion.
Further, former CA chief executive officer Sanjay Kumar and former global sales chief Stephen Richards were charged with securities fraud and obstruction of justice following a two-year probe of accounting misdeeds at the company, Reuters reported. The two men were charged in a 10-count indictment returned by a federal grand jury last Friday and unsealed yesterday.
In the CA settlement, the U.S. Attorney’s Office agreed to recommend that the U.S. District Court defer prosecution of the company for 18 months following the appointment of an independent examiner.
The U.S. Attorney’s Office will seek dismissal with prejudice of the charges and the agreement will expire if it is determined after that time period that CA is in material compliance with all of its obligations under the agreement, according to the company.
“With these agreements, CA has taken a critical step in closing this deeply troubling chapter in its history,” said Lewis Ranieri, the company’s chairman.
Under the terms of the agreements, CA accepted full responsibility for its illegal conduct from January 1, 1998 through September 30, 2000. That conduct included improper accounting practices, misstatement of revenue, and impeding and failing to cooperate with the investigation by the Department of Justice and the Securities and Exchange Commission.
“Some former members of CA’s management engaged in illegal activity,” Ranieri said. “Violations of law and ethical standards, including securities fraud, obstructing a government investigation, and lying to CA’s Board of Directors and CA’s lawyers cannot be condoned.”
CA agreed to create a Restitution Fund and use the $225 million to pay shareholders for the losses they incurred. The company said it plans to take a $215 million second-quarter charge related to the settlement, according to Reuters.
The software giant also agreed to take an active part in aiding government investigators to get present or former CA officers or employees who engaged in any improper conduct while at the company to disgorge their pay.
Without detailing them in its press release, the company also agreed to “numerous steps” to strengthen its corporate governance, management team, and financial reporting and processes. CA also said it will continue to cooperate with the government.
If the company did not agree to settle the charges, it faced possible huge fines and the loss of government contracts, lawyers told Bloomberg. “It’s an alternative to the death penalty for the company, which is criminal sanctions so severe that they couldn’t survive,” Villanova Law School Dean Mark Sargent told the wire service.
Meanwhile, the Securities and Exchange Commission announced securities fraud charges against Computer Associates and three of the company’s former top executives– Kumar, Richards, and former General Counsel Stephen Woghin. Attorneys for the three former executives weren’t immediately available for comment, according to Reuters.
The SEC charged that from 1998 to 2000, CA routinely kept its books open to record revenue from contracts executed after the quarter ended in order to meet Wall Street earnings expectations. Kumar, Richards, Woghin, and others at the company caused CA to obstruct the SEC’s investigation into the company’s accounting practices, the commission asserted.
The company has reached a tentative agreement to settle the suit, according to Bloomberg.