Sanjay Kumar, CA’s former chief executive, is facing 12 years in prison and an $8 million fine for his role in illegally manipulating the software company’s financial results.
U.S. District Judge I. Leo Glasser imposed the sentence Thursday in a Brooklyn courtroom following the 44-year-old Kumar’s April guilty plea to eight counts of security fraud, obstruction of justice and making false statements.
Kumar is scheduled to report to prison on Feb. 27. The amount of restitution to be paid to the victims of Kumar’s accounting scam will be determined by Glasser within 90 days.
“In violation of the shareholders’ trust and the federal securities laws, the defendant persistently misrepresented the company’s financial position and orchestrated a pervasive cover-up scheme,” U.S. Attorney Roslynn R. Mauskopf said in a statement.
At his April plea hearing, Kumar admitted fraudulently inflating CA’s (formerly Computer Associates) quarterly revenue and earnings by using a “35-day month,” keeping the company’s books open longer than allowed by law.
The manipulation gave the appearance that CA was exceeding projected quarterly revenues when, in fact, the company was falling short of its goals. The scheme led to CA to prematurely recognize more than $2 billion in revenue between 1999 and 2000.
Ultimately, CA had to restate the earnings at a loss of more than $400 million to shareholders.
“Today, justice looked Mr. Kumar in the face and held him accountable for presiding over one of the largest accounting fraud schemes on record,” Mark J. Mershon of the FBI’s New York field office said in a statement.
Kumar also admitted to obstructing the government’s investigation and directing CA employees to provide false explanations for the company’s accounting practices.
At Thursday’s sentencing, Glasser found that Kumar also tampered with a laptop to conceal its contents from government investigators and CA’s audit committee.
“The integrity of U.S. financial markets depends on corporate executives accurately reporting their companies’ performance to the investing public,” Mauskopf said. “The sentence imposed today sends the message that accounting fraud is a serious crime and that obstructing justice will inevitably make things worse, not better, for defendants under investigation.”
Stephen Richards, CA’s former head of worldwide sales, has also pleaded guilty to securities fraud, obstruction of justice and perjury. He is scheduled for sentencing on Nov. 14.
CA’s chief financial officer, general counsel and three additional top financial officers have taken guilty pleas in the accounting scandal.
The company itself avoided criminal charges by establishing a $225 million shareholder restitution fund and cooperating with the federal investigation.
“[Kumar’s] deliberate misstatements of over $2 billion of Computer Associates’ revenue caused an elevation of the company’s stock price, but when the scheme collapsed, no one fell harder than the investors who made good faith purchases of the company’s stock,” Mershon said.
Kumar was forced out of CA in 2004 as a two-year federal probe into executives’ sales schemes widened.