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4/24/2006
05:20 PM
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Former CA CEO Kumar Pleads Guilty

The charges could lead to up to 20 years in prison, but a guilty plea may significantly decrease the amount of time spent in jail.

Former Computer Associates CEO Sanjay Kumar pleaded guilty today to charges of securities fraud and obstruction of justice related to a $2.2 billion accounting scandal that had rocked the company for two years.

Kumar and former sales executive Stephen Richards both pleaded guilty in U.S. District Court in New York after being named in a nine-count indictment in September 2004. The charges in the case also included conspiracy to obstruct justice, perjury, and making false statements to federal investigators.

The guilty plea comes despite assertions as recent as two months ago by Kumar's attorney, Jack Cooney of the law firm Davis Polk & Wardwell, that his client was looking forward to fighting the charges against him in court. A call to Cooney was not returned, and Richards' attorney declined comment.

The charges could lead to up to 20 years in prison, but a guilty plea may significantly decrease the amount of time the executives spend in jail. Sentencing is slated for Sept. 12.

Though the charges represent a black mark on CA's past, the guilty pleas could mitigate any further negative effects that a protracted trial may have had on the company. CA co-founder Charles Wang has come through government cases against CA relatively unscathed, though he was named in several related lawsuits.

In late 2003, CA revealed massive accounting problems stemming from assigning revenues to the wrong periods in order to meet analyst expectations.

Four former CA executives, including CFO Ira Zar and two senior vice presidents of finance, had already pled guilty to unspecified charges related to the federal case against CA, which was settled in September. That decision required the company to pay $225 million in restitution and implement expensive financial controls, including an ERP system that will cost the company about $100 million.

Former IBM executive John Swainson joined CA in November 2004 and immediately got to work revamping the company's accounting methods. His leadership has seen a changeover in 20 of the company's top 32 executives.

The company said in a statement that CA is a "dramatically different organization" than when Kumar and Richards left the company, and that it has made "significant progress" in implementing widespread business controls.

Kumar's criminal case may have ended before it began, but he still faces a civil fraud suit. CA too must still fight its past.

The company faces several Justice Department deadlines in implementing rigorous accounting controls and must continue to answer to a government-mandated independent compliance examiner until September. Just last Friday, a former CA vice president was arrested on charges of conspiracy to commit obstruction of justice in an alleged attempt to silence a CA customer executive who knew of wrongdoing by company executives.

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