The sentencing of CA’s former CEO, Sanjay Kumar, earlier this month was another chapter in one of the most extraordinary sagas in our industry’s history.
He was dapper and articulate, a poster-boy for the American dream — after all, he arrived in South Carolina as a Sri Lankan immigrant at age 14 and rose to become the chief executive of one of the world’s biggest software companies.
On November 2, Sanjay Kumar fell from grace when he was sentenced, in the US District Court in Brooklyn, to 12 years’ imprisonment and given a $US8 million (NZ$11 million) fine for fraud relating to the reporting of CA’s quarterly revenues in 1999-2000.
Kumar had been chief executive of CA from mid-2000 until April 2004 and became chairman when CA founder Charles Wang — his long-time mentor — resigned from the company in 2002.
One of his notable away-from-work activities was owning, with Wang, the New York Islanders ice hockey team.
He was widely credited with improving CA’s sometimes fraught relations with customers and, according to Business Week, was the “cool, calculating technocrat who executed strategies that Wang mapped out”.
Kumar joined CA in 1987, when the company’s proper name was Computer Associates (the official abbreviation to CA happened only after Kumar left).
He came into Computer Associates’ employ not by applying for a job but, as so many of its staff did, by way of an acquisition — that of Uccel in 1987.
Kumar was 25 at the time and an executive at Uccel, a major competitor of Computer Associates, which the latter bought for $US830 million.
He soon developed a special relationship with Wang and rose through the ranks of Computer Associates and, by the early 1990s, was playing a major role in the many acquisition deals CA undertook during that decade.
In 1995, he, Wang and another long-standing Computer Associates’ executive, Russ Artzt, were presented with a huge performance incentive at that year’s company Annual General Meeting, payable if CA’s stock price hit $US53.33 for 60 days within a future 12-month period.
In July 1998, with the late 1990s tech stock boom in full swing, that duly happened and Kumar, Wang and Artzt got their dues — US$650 million worth of CA stock for Wang and approximately US$223 million worth of stock for Kumar and Artzt.
Ironically, the news that CA would have to take a one-off charge of US$675 million to fund the stock-grant sent its share price plummeting.
Several CA shareholders took legal action against the company over the stock-grant and one case resulted in Wang, Kumar and Artzt’s share of the spoils being reduced substantially because the original plan was ruled not to have taken into account future splits of CA’s stock.
Despite the controversy, CA’s share price recovered and continued to climb in the wake of the tech boom, peaking at $US75 in early 2000.
It was possibly the on-going obsession with tech stocks and the perceived need to keep CA’s share price high that tempted Kumar and several other CA executives — including New Zealand-born and raised former worldwide sales head Stephen Richards — to embark upon the activities that led to their indictment in 2004, and guilty pleas earlier this year, to fraud and obstruction of justice charges.
In 1999, according to the indictment issued by US authorities in 2004, Kumar, Richards and several other senior CA executives began the “35-day month” practice. This involved back-dating the signing of contracts to make it appear as if multi-million dollar software sales that were clinched a few days after a quarter ended were actually closed within that quarter.
In the first of these cases, Kumar allegedly flew to Paris on July 8, 1999, closed a $US32 million deal with a client based there, then back-dated the contract so that it appeared to have been signed on June 30.
In doing so, CA’s consensus earnings estimate for the quarter was achieved.
This went on until mid-2000, when the practice stopped, causing CA to miss its earnings estimate and its share price to fall.
Kumar became chief executive of CA that year. During his time at the top of CA, he instituted some well-received measures, including setting up a customer advocacy organisation within the company.
He also introduced a complex new accounting method and more flexible licensing terms for customers.
He and Wang had a falling out in 2002 and that year Wang, who had stayed on as chairman of CA after Kumar became CEO, resigned from the company altogether.
The year 2002 also saw the US Attorney’s Office for the Eastern New York District, the FBI and the Securities and Exchange Commission begin an investigation into CA’s accounting practices.
That probe ended in 2004 and, after resigning as CA’s CEO in April of that year and leaving the company altogether in June, Kumar was charged in September.
Initially, he and Richards pleaded not guilty, but other CA executives had already pleaded guilty to related charges and, in April this year, Kumar and Richards pleaded guilty.
Richards’ sentencing is set for November 14.