CA’s CEO Ousted Amid Accounting Probe

UPDATED: Wall Street reaction to the ouster of Computer Associates
former
chairman of the board and CEO Sanjay Kumar was mixed as the market
closed Wednesday.

CA’s new chairman of the board, Lewis Ranieri, announced on Wednesday morning
the
company’s decision to drop Kumar, who helmed the software giant through one
of
the biggest financial scandals of 2003.

Despite the instability an upheaval of this sort normally creates on trading
floors, shares closed at $26.66, a $1.09 gain on the day. In fact, since
the
announcement, the stock has gone nowhere but up, perhaps a sign that
shareholders are convinced this is the right move for the company.

Although Kumar is officially out of the top executive and board spots, he
will
remain on the Islandia, N.Y.-based software company’s payroll, in the newly
created position of chief software architect.

Lewis Ranieri, another director on the CA board, will take over
the
chairmanship and begin the process of finding an interim CEO before settling
on
a new executive to take charge of day-to-day operation.

“We believe the decisions we have made today are fair and responsive to the
situation and in the best interests of CA’s customers, shareholders and
employees,” the newly-minted chairman said in a statement. “The changes in
Sanjay’s role are not based on the conclusion that he engaged in any wrongdoing.
Nonetheless, the conduct in question occurred during his tenure, and the
board
felt this action was appropriate.”

Kumar’s departure from the board of directors caps a tumultuous period for
an
enterprise software company that reached a boiling point in August, when it agreed to settle two class-action lawsuits for financial
improprieties
to the
tune
of $144 million
.

Ranieri pointed out in his statement that the decision to remove Kumar was not
for
any real or perceived wrongdoings, but because he was in charge when the
activities occurred.

“He is highly regarded in the industry and has made remarkable contributions
to
CA’s business,” he said.

Earlier this week, CA announced it had fired nine employees in its finance
(5)
and legal (4) departments in the wake of a continuing internal probe of
the
financial irregularities. An initial finding of the company’s Audit
Committee
found “prematurely recognized revenue in fiscal [year] 2000 on the basis of
software license agreements that were signed in a later quarter,” but
contended
financial reports from 2002 and forward were in place after CA’s adoption of
a
“New Business Model” in October 2000.

On Monday, Kumar made a statement that’s almost prophetic in light of
Wednesday’s events: “As the Audit Committee wraps up its work and takes
these
remedial actions, the management team has continued to focus on the business
at
hand, as we have in the past months.”

On April 8, Brooklyn prosecutors said three former CA finance executives —
Ira
Zar, CFO, and two former senior vice presidents of finance, David Kaplan and
David Rivard — would
plead guilty to unspecified federal charges.

In December, the company announced it was under investigation by the SEC for
those same alleged accounting misdeeds. Financial executives within
the
company are accused of cooking the books to make it appear the company was getting more revenue
than
it actually was.

The committee’s chief, former Securities & Exchange Commission (SEC) chief
accountant Walter Scheutze, is expected to determine soon whether CA will
need
to restate all previous financial reports going back to 2000 or earlier.
Officials don’t discount the possibility of civil or criminal proceedings,
fines
or suspensions in light of audit results.

Standard & Poor credit analyst Philip Schrank said his organization’s
downward
rating is a result of the continuing scandal, as well as the disruption
caused
by the departure of so many company executives.

“This presents a near-term management void and potential disruption as a new
management team transitions into place,” he said in a statement.

Get the Free Newsletter!

Subscribe to our newsletter.

Subscribe to Daily Tech Insider for top news, trends & analysis

News Around the Web