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Ex-chief of software company indicted in wake of scandal

Former Computer Associates International Inc. chief executive Sanjay Kumar has been charged with securities fraud conspiracy and obstruction of justice in connection with a multibillion dollar accounting scandal at the software company.

The charges were unsealed Wednesday after the company agreed to pay $225-million to shareholders in a settlement that allows it to defer criminal prosecution. An independent monitor will examine the company's financial reporting for at least 18 months. If the monitor finds Computer Associates is in compliance with its agreement with the Department of Justice, the company will face no prosecution.

The agreement also settles securities fraud charges brought by the Securities and Exchange Commission.

The 10-count grand jury indictment against Kumar was returned Friday. Stephen Richards, the company's former head of worldwide sales, was charged in the same indictment with securities fraud conspiracy, obstruction of justice, conspiracy to obstruct justice and perjury.

Through his attorney, Kumar denied any wrongdoing and said he expects to be exonerated. An attorney for Richards said his client also was innocent. "The government has overreached in this case," David M. Zornow said.

Under the unusual deal to defer prosecution of the company, the monitor will track Computer Associates' financial reporting while it makes three staggered restitution payments of $75-million to shareholders.

In May, the company offered the government a $10-million settlement.

Deputy Attorney General James Comey said in Washington that the deferral gives Computer Associates "the opportunity to demonstrate that it has a culture that can be saved. Our focus is not on doing harm for harm's sake."

"If they don't take those steps, the consequences will be severe," Comey added.

Computer Associates chairman Lewis Ranieri said the agreement lets the company take "a critical step in closing this deeply troubling chapter in its history."

He also apologized to shareholders and customers.

"We fully support the government's efforts to bring all responsible parties to justice," Ranieri said. "In addition, we will do everything in our power to help the government recover unjust enrichments."

The company also agreed to structural changes _ creating new positions including a corporate controller and chief accounting officer, adding two independent directors, appointing a director of corporate compliance and introducing a companywide ethics training program. Other scandal-plagued companies, such as Tyco International Ltd. have introduced similar programs.

Also Wednesday, the company's former general counsel, Steven Woghin, pleaded guilty in federal court to conspiracy to commit securities fraud and obstruction of justice. He also promised to cooperate with prosecutors.

Woghin told U.S. District Court Judge I. Leo Glasser he was "ashamed to be standing here today," adding that his actions were "entirely inconsistent with my behavior through my more than 30-year legal career."

Computer Associates, the world's fourth-largest software maker, restated its financial results from 2000 and 2001 in April to reflect $2.2-billion in revenue that was improperly booked.

Prosecutors referred to one practice as the "35-day month" because company accountants would extend the booking of revenues in the final month of a fiscal quarter days beyond the true end of the month.

"In many ways, this scheme is emblematic of the schemes of the late 1990s, motivated by the overwhelming desire to create the illusion of success," Comey said.

Three former executives admitted in April that they fraudulently recorded hundreds of millions of dollars worth of contracts in a conspiracy to inflate quarterly earnings. They entered guilty pleas under cooperation agreements that prosecutors called an important move toward indicting other high-ranking company executives.

The company agreed Wednesday to help the government retrieve any compensation and bonuses awarded based on fraudulent financial results. Three executives, including Kumar, split stock bonuses worth $1.1-billion in 1998. Under the company's deal with the government, it could ask that part of any compensation retrieved be returned to the company.

The SEC said that during the company's 2000 fiscal year, Computer Associates "prematurely recognized" more than $1.4-billion in revenue from at least 116 contracts that had not yet been signed.

The company said it will take a $215-million pretax charge in the second quarter of 2005 in connection with the restitution payments. It already took a $10-million charge for the settlement it proposed in May.

Computer Associates also said a company audit was to be completed soon and another restatement of prior financial statements would be done if required.

The company's shares fell 38 cents, closing at $25.30 on the New York Stock Exchange.

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