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April 12, 2004

Three more CA execs knew about fraud – SEC

At least three more Computer Associates International Inc executives knew about the accounting scam at the company, according to court documents filed by the US Securities and Exchange Commission last week.

By CBR Staff Writer

The SEC complaints filed against former CFO Ira Zar and two others last week make reference to at least seven CA executives who knew about fraudulent revenue recognition practices, but so far only four people have been charged.

As previously reported, three former CA executives, including Zar, pleaded guilty Thursday to charges that they held open their books after quarters ended, recording revenue in the wrong quarter in order to meet or beat Wall Street’s expectations.

A fourth former executive pleaded guilty to similar charges separately in January. In all four cases, the SEC sued to prevent these men from working in senior roles at public companies again, at the same time as the criminal charges were filed.

The SEC complaint filed against Zar does not name any other executives, but instead refers to CA Executive A through CA Executive E. The complaint filed against former VP of finance David Rivard refers to executives A through F.

In each of the three suits, nobody but the defendant is referred to by name. It appears that each defendant is referred to by their pseudonym in the complaints filed against the other two, even though they are named in their own respective suit.

With seven executives named directly or pseudonymously in the Rivard suit, and only four men charged so far, there must be at least more three executives formerly or currently with CA who the SEC believes participated in the illegal activity.

SEC assistant regional director Barry Rashkover, who is handling the cases, said the investigation continues, but declined to clarify the identities of the pseudonymous executives. A CA spokesperson did not return a call for comment.

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The SEC’s complaints cover just CA’s fiscal 2000, which ran to March 31 2000. In that time, the SEC says CA prematurely recognized over $1.4bn of revenue from 116 contracts. But the SEC’s complaints suggest the practice was longer-term.

Zar, Rivard and senior VP of finance Lloyd Silverstein, who was charged in January, were forced to resign last October, after an internal investigation uncovered the details of the fraud. David Kaplan, also charged last week, resigned in December.

Current speculation is that prosecutors have their sights set on others in CA’s senior management. Reports have it that CEO Sanjay Kumar, who was president and COO during the period of the fraud, and former CEO Charles Wang, are the prizes.

Kumar and Wang both were the subject of controversy a few years ago when they and one other executive received performance-related bonuses in 1998 worth over $1bn, as a result of CA’s strong share price.

This article is based on material originally published by ComputerWire

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