At CA, jobs on the line

As a criminal investigation of Computer Associates enters its final stages, the company's board will meet to consider the fate of its chief executive, Sanjay Kumar.

April 26, 2004 9:00 a.m. PT

4 min read

As a federal criminal investigation of Computer Associates International enters its final stages, the company's board will meet as early as Tuesday to consider the fate of Sanjay Kumar, its chairman and chief executive, according to three people who have been briefed on the board's plans.

Up to a dozen employees may lose their jobs as the company moves to resolve investigations, these people said.

Kumar has not been charged with wrongdoing, but he has become a focus for prosecutors in Brooklyn, who are investigating accusations of accounting fraud and obstruction of justice at Computer Associates. The investigation gained momentum earlier this month, when three former executives pleaded guilty to charges of obstruction and securities fraud.



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In their pleas, the executives depicted a broad conspiracy at the company during the last two years to lie to prosecutors and Computer Associates' own lawyers about the company's past practice of backdating sales to meet Wall Street forecasts for its revenue and profit.

The company is eager to resolve the investigation, and the directors plan to meet with prosecutors later in the week, after the board has decided what, if any, action to take against Kumar, these three people said. They said that as many as a dozen other Computer Associates executives could be forced out as the company tries to demonstrate to prosecutors that it is serious about changing its corporate culture. John F. Savarese, a lawyer for Computer Associates, declined Sunday to comment on the company's plans.

Lawyers for Kumar could not be reached for comment over the weekend, but they have said that he did nothing wrong and that he looked forward to continuing to run the company. Kumar was the second-ranking executive at Computer Associates in the late 1990s and 2000, when the accounting fraud was said to have occurred, and prosecutors may put intense pressure on the board to force him out. Charles B. Wang, the top executive from that period, retired in 2002.

Kumar and Wang co-own the New York Islanders hockey team and were extremely close during the 1990s, although the pressure of the federal investigation has strained their relationship. In 1998, Wang, Kumar and a third executive received bonuses totaling $1.1 billion tied to the performance of the company's stock, one of the largest amounts ever given to American executives.

Earlier this month, Ira H. Zar, the company's former chief financial officer, pleaded guilty to fraud and obstruction charges. In his plea, Zar said that in January 2000 two other senior executives conspired with him to keep the company's books open to record additional sales into the quarter ended in December 1999 and meet Wall Street expectations for that quarter. The practice of backdating sales was once common at Computer Associates, according to prosecutors; in its 2000 fiscal year, Computer Associates backdated more than $1 billion in sales.

Zar's plea did not name those executives, but people close to the investigation say that Kumar was one of them.

Whatever the board decides to do about Kumar, this week will be crucial for Computer Associates, a company in Islandia, N.Y., that specializes in software that helps big companies manage their mainframe computers and networks. Many big investors have shrugged off the investigation, thinking that the company has already resolved the accounting questions that prompted it, and that its business is solid.

But prosecutors and the Securities and Exchange Commission appear to be furious that Zar and other executives lied and obstructed their investigation, which began more than two years ago. When the investigation first became public in February 2002, Computer Associates pledged to cooperate fully with the government. In their pleas earlier this month, Zar and the other executives admitted that they did not intend to cooperate with the company's pledge. In a statement after the guilty pleas, Roslyn R. Mauskopf, the United States attorney for the Eastern District of New York, said that the pleas "further demonstrate the corrupt culture of Computer Associates' management."

People close to the company say they believe that only an extensive housecleaning will satisfy the government and enable Computer Associates to bring the investigation to a close.

Walter P. Schuetze, a former chief accountant of the Securities and Exchange Commission who heads the company's audit committee, and Lewis S. Ranieri, an investment banker who is the board's lead outside director, are guiding the board's discussions, according to people close to the board.