Risk Management

CA’s Kumar Reporting to Prison

After delays that allowed him to make restitution before serving his 12-year sentence, the former Computer Associates CEO heads for a minimum-secur...
Stephen TaubAugust 14, 2007

Former CA Inc. chairman and chief executive Sanjay Kumar begins serving his 12-year prison sentence today.

According to Newsday, he had been given the summer to sell possessions to pay $50 million in restitution. The Long Island paper noted that Kumar had worked out a deal to pay off the remaining $2 million balance of his $52 million restitution within the next year and a half, citing his attorney, Lawrence McMichael, of Dilworth Paxson LLP.

In April 2006 Kumar pled guilty to eight charges, including conspiracy, fraud, and obstruction of justice. And last November, he received his 12-year sentence and was fined $8 million for his role in the software company’s $2.2 billion accounting fraud.

Kumar and other CA executives were accused of backdating contracts to inflate revenue, the Associated Press reported. He and other executives were charged with instructing salespeople to complete deals after the quarter had closed, which came to be known inside the company as the “35-day month.”

In the case, former CA chief financial officer Ira Zar received a relatively light sentence of seven months in prison and seven months of home deterntionfor what a federal judge called Zar’s key role in the software company’s $2.2 billion accounting fraud. U.S. District Judge I. Leo Glasser sentenced Ira Zar to seven months in prison and seven months of home detention, citing Zar’s extensive cooperation with federal prosecutors and his otherwise spotless record, according to Newsday. No fine was imposed, and restitution was to have been determined at a later date.

In Judge Glasser’s sentencing of Kumar, the jurist said that although the executive was not a violent criminal, he “did violence to the legitimate expectations of shareholders,” according to the AP at the time.

Kumar had been scheduled to report to prison on February 27, but in early February the judge pushed back the day of reckoning, initially until April 24, so that prosecutors and defense attorneys could work out the details of Kumar’s restitution.

According to Newsday at the time, Kumar’s assets were frozen, and the company’s two largest shareholders were seeking the proceeds from the sale of his two Ferraris and his mansion in Oyster Bay, on Long Island. CA, once known as Computer Associates, also reportedly secured an order that Kumar and his co-defendant, former chief of sales Stephen Richards, reimburse the company for nearly $15 million in legal fees.

Kumar was scheduled to report to a minimum-security prison in New Jersey.

Kumar “has done exactly what his agreement with the government required,” attorney McMichael reportedly said, regarding the restitution payments that required Kumar to sell unspecified possessions. McMichael also told the paper that Kumar continues to cooperate with investigations into CA’s prior accounting practices, and that his client “has been cooperating in whatever he’s being asked to do.”

In related news, CA vice chairman and founder Russell Artzt last week was reported in a separate Newsday article to have netted about $15 million when he sold 590,000 shares of CA’s stock, after agreeing to a $9 million settlement with a company board committee.

Artzt, along with Kumar and co-founder Charles Wang had received a total of $1.1 billion in 1998 in controversial pay packages.

The AP noted that government investigations and subsequent criminal charges showed CA manipulated its accounting around the time the package was granted. The Long Island paper stressed that Artzt was never implicated in wrongdoing at CA.