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Former CA chief indicted; company reaches accord

update Former CEO Sanjay Kumar is indicted as Computer Associates agrees to a $225 million settlement in an ongoing accounting probe.

Computer Associates International's former chief executive was indicted on criminal charges related to fraudulent accounting practices, and the company on Wednesday agreed to pay $225 million to settle with federal prosecutors.

The software company's former chief executive, Sanjay Kumar, and the company's former head of worldwide sales, Stephen Richards, were charged with securities fraud conspiracy, obstruction of justice and conspiracy to obstruct justice. The 10-count indictments against Kumar and Richards were unsealed on Wednesday as part of the Justice Department's criminal case against the individuals at CA.

Also, the company's former general counsel, Stephen Woghin, pleaded guilty on Wednesday to securities fraud conspiracy and obstruction of justice in U.S. District Court in Brooklyn, New York.

"The defendants are accused of perpetrating a massive accounting fraud that cost public investors hundreds of millions of dollars when it collapsed," said Deputy Attorney General Comey, in a statement. "Then they allegedly tried to cover up their crimes by lying."

The case stems from Computer Associates' business practices from January, 1998, to Sept. 30, 2000, when the company back-dated contracts to meet financial analysts' quarterly targets. The company's top executives, including Kumar, were awarded millions of dollars in bonuses as a result of meeting those goals.

Computer Associates has previously admitted to wrongdoing and ousted several former executives. 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.

Kumar, who became CEO in 2000, stepped down from the CEO position in April of this year and was pushed out entirely in June. Computer Associates executives said Kumar should be responsible for the company's past accounting practices and the subsequent investigations.

"The obstruction was on Sanjay's watch. As a result, we moved to remove Sanjay from any management position," said Lewis Ranieri, the company's chairman.

Ranieri said Computer Associates will seek to retrieve money paid to former executives involved in the wrongdoing. He said the company has already provided evidence to government investigators and will continue to play an active role in the ongoing probe.

"This conduct is wrong," Ranieri said. "We will seek to return this money to our company and to our shareholders. It's the right thing to do."

The $225 million will be placed into a restitution fund, which will oversee the distribution of the money.

Ranieri and other Computer Associates executives spoke at a teleconference on Wednesday disclosing a settlement with the Justice Department and the Securities and Exchange Commission, which had also been involved in the accounting probe.

The agreement calls for a "deferred prosecution" with the Justice Department. The arrangement could allow Computer Associates to operate and avoid going to trial over the matter. If an independent examiner concludes that CA complies with the terms of the agreement, the charges against the company will be dismissed, according to Computer Associates.

The agreement, which will be in effect for 18 months, also calls for CA to add two independent board members.

The deal between government prosecutors and Computer Associates is a good one for the company, said James Sanders, a partner at Will and Emery. Deferred prosecutions, regularly used for first-time offenders, are unusual in federal cases against corporations. But it's a good arrangement for CA, said James Sanders, partner at McDermott Will & Emery.

"Unless they fall down and breach the agreement, they can go forward and don't have to risk facing crippling fines and a lot of time spent in courtrooms defending the company," Sanders said. "For corporations, it's better to put (charges) in the past."

The accord also gives the Justice Department more control over the outcome of the investigation, noted Chris Caldwell, an attorney at Caldwell Leslie Newcombe & Petit.

"This way, the prosecutors can fashion the remedies, they're completely in control of the process," Caldwell said. "Prosecutors are getting creative these days."

For several months, Computer Associates executives have indicated that they have been working with federal prosecutors on the investigation. But even before the Justice Department's accord with the company was announced Wednesday, the probe had shaken up the software company, once known for its aggressive sales tactics and strained relations with customers.

As part of an internal audit, three of the company's former top finance executives, including its former chief finance officer, Ira Zar, resigned last year. They later pleaded guilty to obstruction of justice and conspiracy to commit securities fraud and have agreed to work with prosecutors on the investigation.

After a number of high-level resignations, the company has an entirely new management team, which includes interim CEO Kenneth Cron and Jeff Clarke, who is chief operating officer and chief financial officer.

CA previously offered to pay $10 million to settle charges that it violated securities law.