Users shrug off accounting fraud trial

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Users shrug off accounting fraud trial

The indictment of former Computer Associates CEO Sanjay Kumar for allegedly orchestrating widespread accounting fraud at CA has failed to shake the confidence of IT managers in the future of their CA installations.

"Obviously, we'll watch what happens, but I don't feel the indictments and related news will have any effect on our use of CA software or our confidence about the vendor," said Alain Paquette, manager of distributed servers at Bombardier Aerospace, which uses desktop, network and server management tools from CA, as well as its helpdesk software. 

Kumar's indictment came on the same day that CA agreed to pay $225m (£124m) to reimburse shareholders for the alleged fraud and to work with the government to help recoup compensation from accused former executives. The US Department of Justice said it wouldn't prosecute the company as long as it abided by the terms of the co-operation agreement over the next 18 months. 

Kumar and former head of worldwide sales Stephen Richards both pleaded not guilty to 10 charges, including securities fraud and obstruction of justice. Both were bailed for $5m and had to surrender their passports. 

Stephen Woghin, CA's former lawyer, pleaded guilty to similar charges for his role in the alleged accounting scheme, which dates to 1999 and 2000. 

Kumar left CA in June, two months after he was ousted as chairman and CEO. The charge against him is that under his leadership CA started systematically recording some software sales in the fiscal quarter before contracts were actually signed. 

The government accuses Kumar and Richards of personally advancing the false accounting practice, which was built around a so-called 35-day month. For example, the indictment says that on 8 July 1999 Kumar flew to Paris to negotiate a $32m software licensing agreement, which was falsely backdated to 30 June. 

CA has accepted responsibility for the alleged illegal conduct of its former executives as part of the co-operation deal. The company has reached a similar agreement with the US Securities and Exchange Commission to settle securities fraud charges. 

"With these agreements, CA has taken a critical step in closing this deeply troubling chapter in its history," CA chairman Lewis Ranieri said. He added that CA officials fully supported the government's efforts to bring all responsible parties to justice. 

IDC analyst Stephen Elliott said the 18-month deferral period for possible prosecution of the company meant that CA had only "pseudo-resolved" the situation. However, he reassured CA's major customers about using its products, adding that the agreements should improve the company's ability to make acquisitions, which had been put on hold. 

Analyst Rich Ptak agreed that the months of uncertainty had left CA "a bit frozen internally in terms of making aggressive and imaginative moves in technology". 

CA, which is being run by interim CEO Kenneth Cron, expects to name a permanent CEO within a month. Company officials refused to comment on the possibility of redundancies. According to analysts at Friedman, Billings, Ramsey Group, thousands of lay-offs are "plausible".

Douglas Spindler, president of the San Francisco Networking Technologies Users Group, which has about 2,500 network and systems managers, said, "If Kumar goes to jail, maybe Martha Stewart can decorate his cell. I hope the truth comes out in this whole thing and that it serves as a wake-up call to business."

Matt Hamblen writes for Computerworld


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This was first published in September 2004

 

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