April 24, 2006 2:56 PM PDT
Former CA chief Kumar pleads guilty to fraud
Kumar made the plea at a hearing with Judge I. Leo Glasser at the U.S. Attorney's office in Brooklyn, N.Y., according to a representative for that office.
The former CEO was indicted in September 2004 on charges of manipulating CA's finances illegally. Also indicted at that time was Stephen Richards, the management software provider's former head of worldwide sales.Both Kumar and Richards pleaded guilty to all accounts against them, including securities fraud, obstruction of justice and perjury. A sentencing is scheduled for Sept. 12, 2006.
Kumar and Richards admitted to fraudulent business practices, specifically back-dating business contracts to inflate earnings and meet financial analysts' expectations, which resulted in misstating CA's revenues by more than $2 billion.
In one case, Kumar flew to Paris and personally signed a contract with a false date, according to Department of Justice prosecutors. They said he and Stephens encouraged others in the company to use this practice, which was internally refered to as a "35-day month."
High-ranking executives were awarded millions of dollars in bonuses for meeting financial targets through this method. Other former CA executives, including former chief financial officer Ira Zar, have already pled guilty to securities fraud and obstruction of justice.
In addition, Department of Justice prosecutors said that Kumar lied about CA's practices to company lawyers and sought to cover up his crimes, which they said included paying off a potential witness for millions of dollars.
In early 2003, an individual threatened to reveal an improper transaction between his company and CA, according to the federal prosecutors. In response, Kumar sent CA's general counsel and another company executive to Hawaii to buy the person's silence. The company ended up paying the individual for several million dollars for a phony consulting engagement.
"The pleas entered today are admissions of guilt in one of the largest corporate accounting fraud schemes on record," FBI assistant director-in-charge Mark Mershon said in a statement. "This apparent but ephemeral performance by the company propped up its stock price, causing investors to suffer untold losses when the scheme collapsed."
Kumar, once a protege of company founder Charles Wang, stepped down as CEO in April 2004. He was forced out of the company a few months later.
CA, having admitted to wrongdoing, replaced nearly all its senior management team and has sought to rebrand the company to repair its image. As a result of an internal audit, the company in April restated $2.2 billion in revenue for fiscal year 2000 and 2001 that was booked improperly.
The company settled with federal prosecutors and agreed to an 18-month "deferred prosecution," which brought an independent examiner and two independent board members to the company.