CA's Ex-CEO Indicted on Fraud

An anonymous reader writes "CNN is carrying a story about how Sanjay Kumar, ex-CEO of Computer Associates, was indicted on fraud charges. Prosecutors said the long-running accounting fraud scheme featured what came to be known by Computer Associates employees as a "35-day month" because company books were routinely kept open until revenues exceeded projected goals. "The defendants cooked the books by simply keeping them open beyond the end of a fiscal quarter for however long it took to meet the analysts earning estimates," said Deputy Attorney General James Comey. Comey said by the time the "house of cards" collapsed, about $2.2 Billion in revenue was booked prematurely. Good thing CA settled it's case with the DOJ."

Comments

Open Letter

[grub]

September 23, 2004
Dear Mr. Kumar,

I'm interested in new some accountants who will would be real "stand up guys" for the company and hear you're looking for work. Please call me at 801-932-5800.

Darl McBride



de-Uglied version of this story: here

A Call For Responsibility

[SlashdotMirrorer]

Seriously, can't the tech industry rise above this Enron-ish nonsense? Whatever happened to the old days of being ethical and honest with regard to your responsibilities to the consumer. You would think that an industry with roots in the old hacker movement that this would not be as big of an issue as in the world of business as a whole. With the problems with accounting at SCO, Adobe, Redhat, Microsoft, and now this, we should take a long hard look at what's going on now.

Re:A Call For Responsibility

[grub]

Seriously, can't the tech industry rise above this Enron-ish nonsense?

You seem to think that the IT industry has some eerie ethics that govern all. That is not the case. The IT industry is just another industry with shares, stockholders, filings, profits and losses. Money is what counts. The size of the profits and payouts of high ranking executives are just numbers on a scoresheet those people play like a game. Trouble is, real people get hurt and those assholes get a slap on the wrist at the white-collar country club jail for a while.

If you or I were to walk into a bank with a note that said "I have a gun." and walked away with a few $K, once caught we'd be in jail longer than the white collar criminals that steal tens or hundreds of millions of dollars.

Re:A Call For Responsibility

[grub]

I'm in Canada. If I were to walk into a bank with a note that said "I have a gun" the teller would tell me to "fuck off" then proceed to throw rolls of pennies at my head.

Re:A Call For Responsibility

[feronti]

Canada... gotta love the customer service:)

Re:A Call For Responsibility

[temojen]

At the university I went to, ethics was a required course for computing science and engineering, but not for ANY of the business programs.

Re:A Call For Responsibility

[servognome]

Whatever happened to the old days of being ethical and honest with regard to your responsibilities to the consumer.
Those days never existed, as long as businesses are run by people, there will be greed driven corruption. There was widespread corruption in the tea industry during the 17th & 18th century (corporations had actually become powerful to the point where they had their own army), railroads (robber barons) in the 19th century, banking (savings & loans) in the 20th century, just to name a few.
Corporations also have no responsibilities to the consumer, they are responsible to their stockholders. The industry has matured, it's more in control of the business types looking to use technology for profit, than the passionate hackers.

Re:A Call For Responsibility

[baywulf]

From the "Devil's Dictionary":

CORPORATION, n.
An ingenious device for obtaining individual profit without individual responsibility.

Re:A Call For Responsibility

[gcaseye6677]

It's because stock holders don't care enough to complain. They all chase the growth stocks, which have to sustain an unrealistic growth rate to remain competitive. That pretty much requires some degree of book cooking. If investors were content with the idea of investing in a company for the long term, based on solid financials, and receiving a good sized dividend, a lot of this fraud would be stopped. And the company board would be crucified if they voted for a 30% pay raise to be given to a poorly performing CEO, since that money would have come straight out of the shareholders' pockets. For true corporate reform, reduce dividend taxes substantially to make dividends popular, then investors will make sure companies are cleaned up, since it directly affects their personal bottom line. Sometimes it really is good that people are motivated by money.

Re:A Call For Responsibility

[mc6809e]

It's because stock holders don't care enough to complain.

I don't think their complaints would have any real effect.

The trouble as I see it is that a few of the largest shareholders control the board. Are they going to listen or even care? I don't think they have to. They'll just go on paying themselves large salaries.

Maybe things would change if board members could only pay themselves through dividends.

Re:A Call For Responsibility

[idiotnot]

Sure. There are plenty. And they're privately-held. The stock market boom of the 1990's made getting that IPO done job number one for up-and-coming business-types. It really started to spin out-of-control with Netscape.

But there are those of us who own IT businesses, who steadfastly refuse to live by the rules the stock market demands. I will gladly trade high profit for product quality, employee satisfaction, and customer support. But Wall Street would have none of that.

Re:A Call For Responsibility

[Wolf_Larsen]

First of all, Industries have a responsibility to monitor themselves. If you see someone pulling bullshit in your company, your ethical duty is to act up. Secondly, don't demonize money. It is behind the forces that keep businesses legitimate and tempt them to be corrupt... in other words its merely a placeholder for human ambitions. And lastly, the reason violent criminals are put away longer than white collar criminals is because the legal system values life far more than money.. Are you disagreeing with that? What's your value per human life?

Re:A Call For Responsibility

[mc6809e]

That's why it's called investing and not "making free money." Dividends are great, but most people invest more for the capital gain (increase in share price). It's not a scam, it's purchasing something that you believe will become more valuable in the future.

Hoping that some greater fool will come along and buy your stock at a higher price is not investing, it's speculation.

Sure, if you legitimately believe someone will come along later and buy your stock at a greater price than you paid, then okay. But remember the purchaser has the same idea as you. At some point there are no greater fools left. Who is going to buy the stock at an even greater price? Someone is left holding the bag.

Re:A Call For Responsibility

[mindstrm]

which brings us back to the beginning of the argument... that if the focus was more on dividends and less on share value going up and up and up, the incentive to cook books would not be as large.

Making the share price go up only requires BELIEF that the stock is worth more... paying more dividends requires actual profits... I think that was the point.

Nobody is arguing that it's not an investment.. it is.. but the inherent value of that investment is, or should be, based on what the company can actually produce.. in reality, it's now based largely on hype.

Re:A Call For Responsibility

[AuMatar]

And thats the scam. The stock market isn't supposed o work that way. The original idea is you bought a piece of the company, it would pay regular dividends, and thats how you made your money. Tats an investment- you know the apprximate dividends it will pay out, and you buy accordingly. Its an inbvestment because its a reasoned decision, and you own something tangible (a piece of the buisness).

What we have now isn't investing, its gambling. You bet on what company you think will beat a made up number by a Wall Street investor (who, incidently, has his own stock and is looking out for his interests, not yours). You can't make reasonable guesses, and you own precisely nothing, becaus the piece of the companay is so overpriced.

You also turn it from a real investment into a 0-sum game. If you invest for increases in value of stock, someone has to wiin and someone must lose. When you invest for dividends, you get a regular payoff- no loser involved. The worst part- 0-sum games are inherently unstable. You can't keep growing forever with no real value behind it. We had a partial collapse a few years ago, we have a bigger one boiling as soon as the stockholders begin to see simple math.

Re:A Call For Responsibility

[killjoe]

" The IT industry is just another industry with shares, stockholders, filings, profits and losses. Money is what counts."

Actually the IT industry is different in that it has probably least amount of regulation of any large industry. Your typical pen or lighter has more regulations that apply to it then your code. The product is not regulated, the people who design or produce the product do not have to be licensed or even degreed. The people who implement don't need to be bonded or insured in any way.

All this despite the fact that a simple error by a coder or a network engineer can cause massive damage like shutting down the communications systems of the FAA.

If you ask me the IT industry needs to grow up and be like all other industries. That means making sure the people who write and implement code have proper training and insurance. In short it means being held responsible for your actions like any plumber or doctor would be.

BTW why hasn't anybody sued MS for malpractice yet?

Re:A Call For Responsibility

[temojen]

(remember that over 90% of this country are christians)

Which country?

Re:A Call For Responsibility

[astrotek]

That's because the bank tellers in Canada deal with Loonies.

Re:A Call For Responsibility

[dnoyeb]

When you steal hundreds of millions of dollars, you steal very many lives. Thousands of people's lives were destroyed by the enron collapse. And likely many suicides, divorces, etc.

If you want a dollar figure, look at life insurance payouts and the CEOs still come out as the bigger criminals.

Re:A Call For Responsibility

[the_rev_matt]

As the saying goes
"Steal a hundred dollars and you're a crook, steal a hundred thousand and you're a banker."

Re:A Call For Responsibility

[pnutjam]

I think it's shameful for people to tacitly condone prison rape and other things. If we want someone to be raped daily for a year, we should have the balls to sentence them to that.

I say bring back cruel and unusual punishment.

I smell a hit!

[Toasty16]

"Sanjay Kumar Goes to White Collar Prison"

Where's my movie deal?

Re:I smell a hit!

[Raseri]

And you could break box office records by keeping the movie open at theaters for however long it takes (approx. 300,000 years).

35-day month

[Audent]

What could you do with a 35-day month? That's at least four extra days off each month... every other weekend could be a long one. That's quite nice. Or you could work the extra days I suppose.

still, what do you expect from accountants? The only industry where the word "creative" is a bad thing.

Re:35-day month

[pipingguy]

...accountants? The only industry where the word "creative" is a bad thing.

What about surgeons?

"Well, if it isn't my good friend Mr. McGreg! With a leg for an arm, and an arm for a leg!"

Re:35-day month

[BrakesForElves]

We used to call it "Declaring Octvember", the mythical 45-day month at the end of the fiscal year. Y'know, the reason for stretching a quarter is that the lazy financial analysts fixate on simple things like a company missing its (or their) estimates, not whether the company's fundamentals and long-term prospects are sound. When lazy analysts drive corporate decision making, prepare for a parade of stupid decisions like declaring Octvember.

this is great

[cooley]

Wow, I've been looking for a way to stretch my paycheck, and this looks like a great way to do it. I'll just tell the credit card companies and my mortgage company that I'm now operating on a 35-day month.

Thanks, CA!

Collateral damage

[TrashGod]

A late bubble bursting? A lot of innocent people are going to suffer for this: lost jobs, lost opportunity, lost credibility.

Re:Collateral damage

[Apathist]

nah... CA is just going to keep on rolling on... Without massive media coverage and a corporate implosion (al la Enron), nobody is really going to care.

From a customer's point of view, if CA can continue to supply new and updated products, what do they care if CA applied a little financial makeup?

Cops with CEO's

[a3217055]

There is a show in the US called Cops, and it is about police chases. They should make Cops with CEO's getting beat up and tortured by cops. That will be funny. A clip of this episode can be seen in Michael Moore's movie Bowling for Columbine. Anyway interestingly enough I am happy that some CEO's are showing up in the media. Wait till they start being someone's bitch in prision. I love my barbaris society. :) Save the environment, please plant a bush in Texas.

Re:Cops with CEO's

[LemonFire]

I actually saw some program on TV where they asked the producers that very question and they said they'd love to do it, but the problem was that it wouldn't be exciting. The CEO type criminals aren't very likely to start running away being chased by the cops, instead they'd just ask to make a call to their lawyer which doesn't make for very exciting TV.

-- This sig space could be yours --

China and CEO's

[WindBourne]

I more and more like China's answer to corrupt CEOs. They shoot them.

Re:China and CEO's

[Capt'n Hector]

I more and more like China's answer to corrupt CEOs. They shoot them.
There are 4 boxes to use in the defense of liberty: soap, ballot, jury, ammo. Use in that order. Starting now.

Whatever happened to washing them, electing them, and making them do jury duty first?

Re:China and CEO's

[EvilCabbage]

A soap-box has nothing to do with washing. To stand on ones soap box is to express ones opinions loudly.

Re:China and CEO's

[WindBourne]

I hope that you are not trying to justify Enron (and other companies like them).

But as to the feds, they are not that corrupt. They already operate under tight laws. The problem is that elected officials are corrupt and then try to force the rest of the government to do their bidding.

Re:China and CEO's

[WindBourne]

who is driving that "lose"? Is it a federal empoyee, or is it a group of elected office holders who are funnelling money to their favorite private enterprise?

eTrust Antivirus is still better than others

[Anonymous Coward]

This better not have a negative impact
on eTrust Antivirus.

It's a lot more dependable and a lot less bloated than both Norton Antivirus and McAffee.

Not as greedy as he looks

[SpamKu]

Sanjay Kumar, while he is a Greedy Bastard, could have been worse. If he had not agreed to "cooperate" and be charged personally, the Corporation itself could have faced charges, causing CA even more problems than it is already facing.

Stupid? Yes.
Stooopid? Probably not.

Re:Not as greedy as he looks

[SpamKu]

OK, I messed that one up. According to the NY Times (evil registration req'd)
(http://www.nytimes.com/2004/09/23/busines s/23comp uter.html) The "deal" was a seperate one between the actual company CA and Judge Glasser. Kumar is just another greeedy bastard who got caught and will, if convicted, likely only spend time in a Federal White-Collar-Hotel Style prison.

Further, from the NY Times article: "In 1998, Mr. Kumar received a stock bonus of $330 million, among the biggest one-time payments ever given to an executive, though he later returned about $70 million in stock to settle a shareholder lawsuit. He was paid another $20 million in salary and bonuses from 1997 to 2004.

Of the top executives at Computer Associates in the late 1990's, only Charles B. Wang, the co-founder and chairman before Mr. Kumar, has not been indicted or entered a guilty plea. Prosecutors have never publicly mentioned Mr. Wang as a focus of their investigation, and a lawyer for Mr. Wang said he had no comment."

Nasty Greedy Bastards, all of them.

Re:Not as greedy as he looks

[Motherfucking Shit]

If he had not agreed to "cooperate" and be charged personally, the Corporation itself could have faced charges, causing CA even more problems than it is already facing.

The Corporation should be facing charges. It ought to be fucking disbanded. The real problem these days is that the Corporations have rights of Persons, but do not face the same liability as Persons.

If I, as an individual, cheat you out of millions of dollars, I'll probably spend 20 years in prison. If I, as the CEO of a Corporation, cheat my shareholders or some other Corporation out of millions of dollars, I'll probably have to resign as CEO, take a 5 million dollar golden parachute, and retire to South Beach. If I'm stupid enough to lie to federal agents during the ensuing investigation, I might do 5 months' time in Club Martha. If I'm a major contributor to the President's political party, I won't even be indicted.

This is the problem, the Corporate Veil is the problem. I have nothing against limited liability; if you incorporate and your company fucks up, there's no reason it should bankrupt you personally for eternity. But when Corporations are given many of the same rights as Persons, they must also be held accountable as Persons would be in similar situations.

We are in dire need of a Corporate Death Penalty. Enron, WorldCom, and others should not be able to simply file for bankruptcy and erupt as phoenixes from their own ashes to repeat their sins.

Re:Not as greedy as he looks

[Anonymous Coward]

I like the idea of a corporate death penalty. To expand a bit upon the idea, I think the following would be more fair than the current situation.

1) Taking current bankruptcy proceedings a bit further, once a "CDP" is declared, the corporation must immediately sell all existing assets at market value or as close to market value as possible to complete a fast sale. Supposing "Renron's" corporate HQ building is worth 20 million dollars, a 15 million dollar bid for that building by anyone should be considered reasonable, accepted, and that money should go into a "corporate funeral fund." Same with all of the rest of the company's assets.

2) The corporation must dissolve and may never operate in business again, no matter who's supposedly in charge. Regardless of who purchases the assets, no one who was an executive at the failed company may be allowed to work for any company who acquires any part of the failed corporation. If Lenny Kay was CEO at Renron, and Renron's assets are bought up by Ding-Dong Corporation, Lenny Kay cannot go to work for Ding-Dong Corporation in any capacity.

3) Individual, non-corporate investors in the failed company _must_ be compensated first. This means that Joe Average who bought 500 shares of Renron must be given his fair share of the "funeral fund" long before BigBank or AngelVenture get any of their loan money back. Same goes for all of the retirement funds who, on behalf of Joe Averages, invested in Renron. If BigBank or AngelVenture loses out, boo hoo. Maybe next time around, they'll be a bit more responsible with the blank checkbooks loaning a few billion here and a few billion there.

4) With a corporation given a "CDP," the executives should have to pay back into the process. CEO got a 10 million dollar bonus last year? Fine him 10 million dollars and put it into the "funeral fund." Any inappropriate spoils should be returned to the death fund of the company, to be recompensed to its shareholders, individuals first.

With some tweaks like these, corporations might become responsible again.

Your vote matters.

Enron

[randall_burns]

What hasn't really made it into the press is that about $3 billion of the $12 Billion in shareholder losses at Enron were in India. Did this have anything to do with the fact that the lion's share of Enron's US IT staff were H-1b workers from India? Certainly the H-1b program gave Enron's management more rope with which to hang themselves-for example Enron had entire team software projects with no legal purpose!
(A Spectrum Article talked about that one).

Re:Enron

[dodobh]

Actually, no.
Enron "invested" in a power project with some rather underhand dealings and the next government to take power put the project on hold.
So Enron just couldn't get the returns they expected (they didn't get any).

This has absolutely nothing to do with their IT division.

Country Club Prison

[mrs clear plastic]

If this guy gets prison time, he will still be better off than those who lost their jobs because of this actions.

Especialy if any of those who lost their jobs end up homeless.

He will have a roof over his head and three decent meals per day.

I do wonder, though, if the so called country club prisons are just that, or is that an exagguration? I knew of someone who had served in the one in Conneticutt and he said it was no country club.

Re:Country Club Prison

[dasmegabyte]

Which is why, if you're homeless, you should commit a crime.

Worst comes to worse, you're in prison. At best, you get some free shit.

Seriously though, if you worked for Computer Associates at any time, and wound up homeless as a result of CEO corruption, you are even worse at managing money than I am. I know guys who were broke and been out of the workforce for YEARS who still keep up their rent.

Re:Country Club Prison

[tukkayoot]

Minimum security prisons are no picnic. I hear the trick is to kick someone's ass on your first day, or become someone's bitch. Still better than a federal pound-me-in-the-ass prison, though.

Re:Once again

[Apathist]

There is one important difference: CA is not about to implode... in fact, throughout this whole scandal, its share price has continued to rise.

Make of that what you will...

Re:And the hit movie script

[DigitalHammer]

Judge: Mr. Kumar, you have just been indicted for defrauding shareholders out of millions of dollars. What do you have to say about this? Kumar: Um...sorry your honor. I can't remember anything about that--I was high.

Once again...

[a whoabot]

Once again the leftist government interferes with the freemarket, certianly resulting in deleterious effects for mankind as a whole.

If the company wants to file their revenue that way, they have a right to. If consumers don't like the way they file their numbers they can do business with someone who files numbers in a way they want. When Computer Associates finds that no one is deadling with them because of their method of book-keeping, they'll want to change their ways so that they can compete and make money. This is how the freemarket works. The government doesn't need to interfere. This is the same as forcing companies to pay minimum wage: forcing them to file minimum numbers. It's anti-competetive; and, I don't want to frighten people, but it's borderlining on communism even.

Re:Once again...

[Edmund Blackadder]

Please tell your professor he is an idiot.

"When is the last time the SEC or a Certified Public Accountant identified a case of major corporate fraud before the scam was so far gone it sent the company to court and probably bankruptcy?"

When dod the police catch on a planned murder (or other crime) before it is actually comitted? -- very very rarely. So should we disband the police? Or should we consider that even if they are too late to prevent a crime punishing the criminal provides justice and prevention to other criminals.

The answer is to make the SEC better and not to disband it.

"The SEC was established in the 1920s, yet there have been numerous major stock market crashes and other scams at regular intervals since, and just as many high profile corporate bankruptcies. "

Actually if my memory serves me correctly, it was established in the 30's when securities act was passed. It was established in response to the great depression and there has not been another great depression yet. Furthermore, while there are numerous examples of fraud that is not caught by the SEC, we no longer see the obvious fraud that used to happen during the robber baron ages.

"who do not scrutinize firms in the detail they should"

Scrutinizing firms in higher detail will not necessary prevent fraud. The only thing investors can do is check financial statements for inconsistencies, and the financial statements are entirely created by management. So a dishonest manager only needs to lie consistently in order to escape the deepest scrutiny.

So what is the alternative? That investors become spies and actually go to the company's offices and check on things? Well if you believe that, then 99.999% of current stock owners will not be able to invest properly, which means that the market will crash, capital will become 10x more expensive and our economy will disappear. I would rather have the SEC.

"But they are badly mistaken, the protection offered is nothing but a rubber stamp on an audit report."

Actually the protection offered should be much much greater because auditors are personally liable for any losses resulting from their lies (or screw-ups). And auditors usually have a lot of money. The only problem is that the system is so fraught with corruption, that the auditors responsible for the Enron case, and other similar disasters have been largely able to get away. For the Enron case, the DOJ dragged their feet and let Andersen consulting burn all their documents, destroying all evidence.

Again the solution is getting rid of corruption, not doing away with the system alltogether.

It's Its

[Clipper]

"CA settled it's case with the DOJ."

It should be its, not it's.

Since we had a recent article from the CGL at the Univeristy of Waterloo, here's the explanation from one of the faculty there.

Yes, I'm pedantic.

The punishment should fit the crime.

[Anonymous Coward]

I say we submit the guy to the Unicenter Administration Interface.

Sure, sure ... all of sudden nobody cares about that one amendment that has to do with cruel and unusual punishment. You don't even know which amendment I'm talking about do you?

"Hi, I broke the law!"
"To Unicenter you go!"
"This is bullshit, that one guy got the chair, this isn't fair!"

Re:Possessive article

[aussie_a]

Your new here aren't you?

CA training support anecdote

[certron]

I found a post on someone's livejournal page about the time that they had spent as a technical writer working for a company that was assisting CA's training department.

http://www.livejournal.com/users/sclerotic_rings /5 80872.html

"Not only were we all informed that the company was in great shape, but we were told that the co-CEOs were "good friends of George W. Bush's, so he's going to get us lots of government contracts." Two days later, CA went through its first serious layoff in years, and the entire training department was laid off a week after that." (There's more on the site)

Re:Once again

[Micro$will]

I think this is the most interesting part:

Comey noted that for the first time in a major corporate fraud case, prosecutors decided to defer prosecution against the corporation itself.

Imagine that, now we finally have people being held accountable for their actions instead of letting them hide behind their corporate shields!

Convict Chuck Wang too!

[GomezAdams]

I worked for a company that was taken over by CA. They quit paying the consultants expenses in a ploy to save the money for Wang and Kumar and to get us to quit instead of laying us off and paying unemployment. The bastards still owe me thousands and I eventually quit them because of it when I saw what was happening and realized I would never recover the money. One of the jokes among former CA consultants when they meet is about how much money CA cheated them out of. And that was during Wang's watch. Send them both to the slammer for theft and misconduct.

this used to be common

[Stu Charlton]

The "35 day month" used to actually be a fairly common practice in software around 10 years ago. It's purely due to accounting fictions -- monthly and quarterly sales goals and wall street guidance. Short term gain over long term wealth capacity.

Many companies squeeze vendors for discounts and delay purchase until end of month. Of course, purchasing processes and systems are bound to mess up, so the P.O. never really gets through until the 1st to 5th of the next month...

This also was rampant back in the .com days.

CA still operates in the old model of sales, whereas most enterprise software vendors are much smarter about this sort of stuff.

disclaimer: just my personal opinions, might be b.s., ymmv

Re:Japan and CEO's

[Minna Kirai]

AC: I guess the sepuku/harakiri culture ended when emperor Hirohito did not kill himself after World War II...

Wrong. The suicide is not appropriate for the imperial family. I can't think of an Emperor ever killing himself... he is a god, he is infallible. If something went wrong, it must have been the fault of a lesser, imperfect person.

Plus, consider that the whole reason Japan kept on fighting a hopeless war for 5 months was to keep going until the USA promised the Emperor's safety. (They would've surrendered long earlier if they knew Hirohito wouldn't face war crime charges)

The ones who should be willing to sepuku are the samurai warrior class that works for the emperor.

Anyway, the suicide culture continued past WWII. Yukio Mishima ended his life in proper samurai style in 1970. Even today, Japan has about the highest suicide rate in the world. After corpses kept clogging up the high-speed trains, the government declared that surviving family will be billed for any traffic blocked by a suicide.

Why should I suffer for managements sins?

[dtolman]

The Corporation should be facing charges. It ought to be fucking disbanded. The real problem these days is that the Corporations have rights of Persons, but do not face the same liability as Persons.

Whoa!!! Hold on there - can you go back and explain again why the government should toss myself and my coworkers onto the street for upper managements ethical/financial sins?

A corporation is more than a virtual person - its made up of thousands of people. Why should they be punished? Its bad enough the company is laying off 10% of its employees in a few weeks because of our ex-CEO's mistakes.