|By Maureen O'Gara||
|September 8, 2008 07:10 AM EDT||
From his cell in a federal prison in New Jersey, former CA CEO Sanjay Kumar has pointed an accusing finger at CA founder Charles Wang and said that Wang was the real author of the $2.2 billion accounting fraud that sent Kumar to jail for 12 years and nearly destroyed the company.
Kumar has said such things before but this time he also claims CA co-founder Russell Artzt, now its vice-chairman, was an active participant in CA's notorious "35-day months" and that one current and two former CA board members, including former US Senator Alfonse D'Amato, former Salomon Brothers vice-chairman Lewis Ranieri and former Audit Committee member Willem de Vogel, knew all about CA's practice of keeping its books open for five days or more past the end of the quarter so it could recognize some of the next quarter's software license revenues early and meet Wall Street's expectations.
He says they conspired to stonewall the government's investigation into the fraud and protect Wang.
Everybody denies the allegations. Newsday, CA's local paper, which broke the story, says Kumar's appeal of his prison sentence is supposed to be heard this month.
Kumar's accusations come a year into his stretch in a 27-page affidavit filed with a federal court in New York on August 27 on behalf of CA stockholder Sam Wily, who has been fruitlessly trying to get the court to reopen a shareholder class-action suit settled in 2003.
When CA bought Wily's company, Sterling Software, in 2000 it paid for it in conflated stock. A quarter later, when CA pre-announced, its stock price tanked. Wily has been seeking readdress ever since, twice kicking off a proxy fight to unseat CA's board.
His lawyers are now hoping Kumar's so-called new evidence will persuade the judge to reopen the case.
Kumar, however, claims that he told this story to CA's internal investigators in 2006 and 2007 but that his version of the events never made it into the Special Litigation Committee's report that was made public, which is kind of odd considering it accused Wang of fraudulent accounting and urged legal action.
"Fraud pervaded the entire CA organization at every level, and was embedded in CA's culture, as instilled by Mr. Wang, almost from the company's inception," it said.
It also described CA under Wang as a "one-headed dragon" and said "no significant decisions were made without his participation and approval."
CA thought at the time that it could make a $500 million claim against Wang, who was never charged by the government reported because of a five-year statue of limitations. It has reportedly also asked the court to reopen the stockholders' suit.
Anyway, Kumar says that when he went to work for CA in 1987 its 35-day month was "firmly entrenched" and "considered to be the way CA did business." He claims Wang "personally directed the implementation of this practice in my presence."
More to the point, Kumar claims that Wang, then still CA's CEO, personally directed him to bring in and backdate contracts for quarters Kumar is serving time for, including sending Kumar to Paris to close a deal with AXA.
Kumar also claims that "Wang insisted that CA stonewall the government, explaining that, if CA did so, the investigation would eventually ‘go away.'"
Kumar says D'Amato was "aware of Wang's participation in those practices...and told me on more than one occasion that it was best not to discuss Wang's involvement," warning him "Don't piss on the past," which Kumar calls "D'Amato's standard phrase for instructing me not to implicate Wang."
Kumar claims Raineri, then a member of the board's Audit Committee and eventually Kumar's replacement as chairman of CA, "instructed me not to divulge the full extent of the 35-day month practice to [Walter] Schuetze, the chair of the Audit Committee" because "Schuetze would have a heart attack" and "would ‘turn on us' if he found out."
Raineri reportedly told Kumar that CA had to "play hard ball" with the government and reportedly told CA's former head of worldwide sales Stephen Richards in Kumar's presence that if he took the Fifth or told the SEC the truth that he would be fired, but "as long as he was in the company, Ranieri would protect him."
Richards lied and is now serving a seven-year sentence for obstruction of justice and perjury.
D'Amato, given his connections, was allegedly supposed to fix CA's problems with the government and arrange a settlement.
Kumar says D'Amato brought in his buddy, Sullivan & Cromwell lawyer Robert Giuffra, to run an internal investigation when the government insisted on such a probe and that "Giuffra undertook conducting CA's defense against the government investigation to minimize the investigation's depth and any damage that might be done to D'Amato, Ranieri and Wang."
According to Kumar, from 1999 through 2003 Wang paid D'Amato's consulting firm $390,000 through The Smile Train, the Wang-established charity, to make up for the consulting fees from CA that D'Amato lost when he joined the CA board.
Kumar says he found out about the payments through an "anonymous source" and offers IRS filings demonstrating payments from Smile Train to Park Strategies LLP, D'Amato's company.
D'Amato is still on the CA board; everybody else except Artzt is gone.
Artzt supposedly told Kumar "that he questioned whether I should implicate Wang when asked by the government about CA's accounting practices. By the end of the conversation, however, Artzt thought it was best not to disclose the 35-day month practice or Wang's involvement. Artzt told me to remain silent because he thought that D'Amato would ‘get this fixed.'"
Kumar says Artzt, who like Wang was never charged, "played an instrumental role in persuading a number of CA customers to sign license agreements after the close of the quarter in which the revenue associated with the agreement would be recognized." He claims Artzt knew the contracts would be backdated.
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