20/02/2007

IT'S CHEAPER TO TELL THE TRUTH

Some more interesting developments in the CA fraud scandal I've been following, particularly in respect to kiwi Stephen Richards' involvement.

As I've written in previous posts on CA below, Richards is due to start his seven year jail term for securities fraud, perjury, conspiracy and obstruction of justice, on February 27. Richards, formerly of Wellington, was worldwide head of sales at Computer Associates. His boss, Sanjay Kumar (pictured left in happier times with his former mentor turned enemy, CA founder, Charles Wang), received a 12 year sentence and was also scheduled to start it on February 27. It now turns out that his start date has been delayed two months until April as lawyers argue over the amount of restitutions he will have to pay. Reports out of the US suggest the figure could reach US$50 million.

I asked Richards in December how much the legal bills he'd racked up in defending himself in the SEC and Department of Justice case against him had come to. He told me that CA had paid US$8 million towards his legal bills. It now appears that CA will seek to recoup the combined legal bills of Kumar and Richards to the tune of US$14.9 million. That's only the portion CA contributed, up until the time the company cut them loose and they were indicted. Surely the total amount in legal bills would be much higher, thought I'm sure the richly rewarded lawyers in the case would have been happy to offer some free credit after taking all those millions off CA.

The other development in the case, is that Richards' former colleagues, the ones who turned state's evidence against him and Kumar, have finally been sentenced. Boy, were they smart in agreeing to play ball with the DOJ. Ira Zar, the former CA chief financial officer, received seven months jail and seven months home detention for his securities fraud, conspiracy and obstruction of justice charges.

Zar was the man who allegedly met with Richards and Kumar each quarter to engineer the 35 day month and decide how much revenue had to be stolen from the next quarter to prop up the current quarter's revenue. As such, he was just as complicit as Richards, if not Kumar. While Zar faced the serious charge of obstruction of justice, he was obviously very well advised by his lawyers, unlike Richards who was slapped with a sentence, many-times longer than Zar's.

That's not the worst of it. Another indicted executive, former CA senior vice president, Lloyd Silverstein, got a mere six months home detention for his part in the fraud. He was convicted on the obstruction of justice charges as well but won leniency as he was the first of the executives to cooperate with investigators. He's already reached a civil settlement with the SEC.

Steven Woghin, the former in-house legal counsel for CA, got two years for his part in covering up the fraud.

Compared to Richards and Kumar, these other executives received slaps with damp bus tickets and will be out and working their old contacts in the mainframe market before next Christmas. It goes to show you that you can't work against the statistics - most people who face federal indictment plead gulity and of those who go to trial, a small minority get off. Richards knew that, but decided to go ahead with his not guilty plea, then at the last minute, changed his mind and pled guilty. The short sentences of his former colleagues will only serve to ram home just how bad his judgement really was.

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