Former CA chairman Sanjay Kumar, from the prison cell where he is serving a 12-year term for his role in a massive accounting fraud scandal, pointed the finger at one-time boss and friend Charles Wang.
Kumar alleged that Wang, cofounder of the company previously known as Computer Associates “personally directed” improper accounting there going back to 1987, according to the Long Island newspaper Newsday. Kumar’s charges came in a 27-page affidavit filed in court Tuesday by Texas billionaire and CA shareholder Sam Wyly. Kumar also claimed in the document that several long-time board members “took steps to protect Wang and conceal the facts.”
Kumar said that board members Lewis Ranieri and Alfonse D’Amato, the former New York Republican senator, “had knowledge of” the accounting misdeeds for which he went to prison — going back “at least” to 2003, according to the paper. He said the accusations were earlier communicated to a special board committee through “many” interviews, but they never made it into a report the board publicly filed in 2006, documenting the scandal, according to the Newsday account of the court filing.
In the affidavit, Kumar reportedly provided examples in which he alleged that Wang pushed him to close contracts after a quarter closed. Kumar alleged that it was at “Wang’s direction” that he took a July 8, 1999, flight to Paris to close a $32 million deal with GIE Informatique, according to the report. Kumar then said that $19 million of the contract was improperly recognized nine days after the quarter’s close, according to Newsday.
Kumar also alleged that Ranieri specifically directed him to keep details of the accounting improprieties from fellow CA director Walter Schuetze, the former SEC chief accountant, saying Schuetze would “have a heart attack” if he knew the extent of the misdeeds.
Ranieri, chairman and CEO of Houston-based Franklin Bank Corp., is also the founder of Hyperion Private Equity and a former Salomon Brothers mortgage-bond trader. Representatives of Ranieri and D’Amato did not immediately return queries from CFO.com seeking comment. A spokesman for Wang, however, called the allegations false and claimed that “Mr. Kumar continues to be a stranger to the truth.”
The Wang spokesman noted that in a 2007 statement, Wang denied involvement and said that he was “appalled” by the charges. “I intend to vigorously defend my good name and fight any and all efforts to place the crimes of Kumar and his management team at my feet,” the spokesman said, quoting the statement.
In April 2006 Kumar pleaded guilty to eight charges, including conspiracy, fraud, and obstruction of justice. He began serving his sentence last August, after being sentenced to 12 years and a fine of $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. 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 CFO Ira Zar received a relatively light sentence of seven months in prison and seven months home detention for what a federal judge called Zar’s key role in the software company’s accounting fraud. No fine was imposed, and restitution was to have been determined at a later date.
In September 2004, Computer Associates agreed to 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. In the 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.
Newsday said that the latest affidavit was filed as part of a lawsuit against former and current CA executives and directors by shareholder Wyly, who is hoping to recover hundreds of millions in losses from his investments in CA. According to the paper, William A. Brewer III, lead counsel for Wyly, said that the material from Kuman “confirms a conspiracy and subsequent cover-up of epic proportions.”