The cloud hanging over Computer Associates International Inc has deepened, after one former financial executive pleaded guilty to federal charges stemming from the accounting fraud investigation into incorrectly recognized revenue.
Lloyd Silverstein, a former senior vice president of finance who had worked in CA’s finance department for nearly 16 years, entered the plea as part of an agreement reached with the US government. He, along with two other finance executives, were asked to resign in October.
Silverstein pleaded guilty to conspiracy to obstruct justice during an accounting probe of the company. He also agreed to a permanent injunction prohibiting him from violating Security and Exchange Commission (SEC) accounting rules and serving as an officer or director of a publicly held company.
The government, with Silverstein’s help, will allege a pattern of revenue manipulation at CA that dates back many years, according to reports. The reports also state Silverstein’s may reveal some CA people were involved in a concerted effort to cover up the accounting misdeeds.
Silverstein is expected to admit to taking part in an alleged cover-up before deciding to end his participation and co-operate with the government. He is now considered a key whistle-blower in the ongoing investigation.
In a statement issued after Silverstein’s plea, CA said it is unable to predict the full scope, timing or outcome of the government’s investigation. However, CA warned the investigation: Could result in the commencement of administrative, civil injunctive and criminal proceedings, including the imposition of penalties and other remedies.
Computer Associates is currently facing both its own internal audit committee investigation into previous results, and an SEC investigation. Earlier in the month, the SEC issued a Wells Notice, which suggested commission staff could advise the agency to sue CA over alleged violations of securities law.
CA itself admitted last year that during the fiscal year ending March 31, 2000 it prematurely recognized revenue. CA followed a practice known as the 35-day month, in which sales personnel back-dated business agreements finalized in the days immediately following the end of fiscal quarters, according the SEC.
The purpose was: To create the false appearance that CA had met or exceeded its revenue estimates, when it had in fact fallen short, according to court papers filed by Assistant US Attorney Michael Cornacchia.
During a recent conference call to discuss its improved financial results, CA boss Sanjay Kumar said the company had till the end of the month to decide how to respond to the Wells Notice, adding that this deadline could be extended by agreement. He said CA was still deciding on its response.
Silverstein faces the prospects of a stiff financial penalty, and may have to pay back any money he might have made as a result of the improper revenue recognition practices.
This article is based on material originally published by ComputerWire