Computer Associates Sacks Execs

No stranger to accounting controversy, Computer Associates
said late Wednesday it has fired three top company officials for their role
in the software firm’s ongoing accounting scandal.

CA Chairman Sanjay Kumar said Ira Zar, the company’s chief financial
officer, along with senior vice president for finance, Lloyd Silverstein and
David Rivard, vice president for finance, were all asked to resign, after a
preliminary report by an independent auditor revealed their roles in the
company’s accounting irregularities.

The independent auditors report comes as both the U.S. Attorney General’s
office and the Securities & Exchange Commission are conducting a joint
investigation into whether Computer Associates manipulated its revenue
numbers in an effort to pump up the company’s stock price.

At issue is whether Computer Associates officials booked and forward-dated
customer contracts to improve the company’s revenues over a series of fiscal
quarters.

The independent audit was conducted by Walter P. Schuetze, and he said some
of the company’s contracts should have been reflected in the financial
statements when they were signed, and not before.

On the conference call Tuesday, Schuetze said his investigation found that
CA had “recognized certain revenue prematurely in the fiscal year ending
March 31, 2000.”

In the aftermath of the disclosures, Douglas Robinson, a senior vice
president of finance was named the company’s interim chief financial
officer.

The revelations are the latest blow to Computer Associates, which has been
dogged by accounting irregularity allegations for several years. The news
will only provide further evidence for the joint government inquiry, which
may take action against the Long Island-based business software company.

While the company is admitting wrongdoing for the first time, it is unclear,
whether its disclosures will assist it in mitigating the potential damage
from the ongoing government inquiry into the company’s improper booking of
revenues.

In a conference call on Wednesday night, CA CEO Sanjay Kumar did his best to
distance himself from the accounting irregularities, saying the missteps
took place in fiscal 2000, and that he took over from retired founder
Charles Wang in fiscal 2001. However, while not in charge, Kumar was a top
official in the company at the time of the accounting errors.

A recent report in Newsday said that Kumar has retained Robert Fiske, Jr., a
former Whitewater special prosecutor, as his personal counsel. The report
went onto say that several CA employees have been subpoenaed as part of the
government’s ongoing investigation of Computer Associates.

It is still unclear whether Computer Associates will restate its earnings
for the period which it has recognized improper accounting took place. It
also is not known when the joint government inquiry will disclose its
findings, or what specific actions it may take against the company.

Following the news of the accounting irregularities, CA’s stock price was
trading lower on Thursday. The company also reiterated its second quarter
earnings estimates and said it would report its financial results on October
22. Analysts are expecting CA to report earnings of 14 cents a share, up
from 4 cents for the same period a year ago, according to Thomson First
Call.

And more bad news came to Computer Associates Thursday, when Standard &
Poor’s Rating Services said it has placed the company on its “BBB+”
corporate credit and senior unsecured ratings and its “A-2” commercial paper
ratings. S&P went onto say it is putting the company on its CreditWatch list
“with negative implications,” the credit rating group said.

“The action followed the preliminary findings of an independent inquiry
conducted by an internal audit committee that the company prematurely booked
certain revenue in the fiscal year ended March 2000,” S&P said.

“The potential exists for uncovering additional irregularities, restatements
of prior period financial statements, and shareholder lawsuits,” S&P added.

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