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

[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

[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

[astrotek]

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

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.

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.

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.

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?

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

[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.

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.

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.

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.

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: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.

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