The legal net is closing in around another former CA executive after a special internal committee recommended that co-founder and former CEO Charles Wang also be sued for his alleged part in a major accounting fraud at the software company.
The committee released a report late last Friday that recommends Wang, who served as CEO at the Islandia, New York-based firm until his retirement in 2002, be sued for the recovery of damages and the value of company stock he received as a result of an elaborate accounting fraud.
CA was found to have fiddled its books between 1999 and 2000 by artificially recognizing additional revenue — the so-called 35-day month — in order to hit Wall Street expectations.
The committee’s accusation against Wang came on the same day that his successor Sanjay Kumar was ordered by a judge to pay restitution damages of $52m to shareholders that lost money on CA as a result of the fraud. Payment will be made over the next two years.
Kumar originally was ordered to pay restitution damages of around $800m over his lifetime. But the special litigation committee had reached a deal with the former CA front-man for a more realistic amount in the short-term. Kumar will pay an extra $15.25m on top of the $52m he will pay shareholders as part of a criminal restitution proceedings.
Kumar also faces a 12-year stint in federal US prison, due to start this summer, after being found guilty in November last year of accounting fraud and a subsequent cover-up that included backdating contracts, lying under oath, and trying to buy the silence a potential witness.
CA set up its special litigation committee, which contains two-non management directors, to investigate the fraud and the subsequent cover-up by its senior executives up to 2004.
The committee’s damning report released last Friday concluded that Wang directed and participated in the fraud that forced CA to restate $2.2bn in revenue.
The report also highlighted pervasive culture of fraud throughout the entire CA organization which it claims was instilled by Mr Wang, almost from the company’s inception. It also pointed to a profound failure of leadership and start-up mentality: that was not befitting of a publicly-traded, multi-billion dollar, software firm.
Investigators said that Wang had consciously created a culture of fear at CA and had surrounded himself with young and inexperienced executives whom he and other senior peers could dominate. The committee cited the example of Ira Zar, who was appointed as CFO in June 1998 despite not having a certified public accountancy qualifications and little experience outside of CA.
Wang is reported to have solely blamed Kumar for the fraud through several media outlets.
He said in a prepared statement that he had already met with CA’s counsel and had fully cooperated with the US government at all stages of the investigation. But he slammed any accusations that he helped engineer the fraud and said he would defend his good name and fight any and all efforts to place the crimes of Kumar and his management team at my feet.
Wang disagreed with Bill McCracken, part of the special litigation committee, that the committee had reached the right conclusion regarding settlements, claims and dismissals, after conducting nearly 90 in-depth interviews with staff and reviewing millions of pages of documents.
I find it hard to understand how the special litigation committee could believe the information they were given was credible, when their sources are those who perpetrated the crimes at issue and then lied about them to both internal company investigators and the government, Wang said in the statement.