Computer Associates 2007 Annual Report Download - page 119

that revenues were prematurely recognized in the fiscal year ended March 31, 2000, and that a number of software license
agreements appeared to have been signed after the end of the quarter in which revenues associated with such software
license agreements had been recognized in that fiscal year. Those revenues, as the Audit and Compliance Committee found,
should have been recognized in the quarter in which the software license agreements were signed. Those preliminary findings
were reported to government investigators.
Following the Audit and Compliance Committee’s preliminary report and at its recommendation, David Kaplan, David Rivard,
Lloyd Silverstein and Ira Zar, the executives who oversaw the relevant financial operations during the period in question,
resigned at the Company’s request. On January 22, 2004, Mr. Silverstein pled guilty to federal criminal charges of conspiracy
to obstruct justice in connection with the ongoing investigation. On April 8, 2004, Messrs. Kaplan, Rivard and Zar pled guilty to
charges of conspiracy to obstruct justice and conspiracy to commit securities fraud in connection with the investigation.
Mr. Zar also pled guilty to committing securities fraud.
On January 26, 2007, Mr. Zar was sentenced to a term of imprisonment for seven months and home confinement for seven
months. On January 29, 2007, Mr. Kaplan was sentenced to home confinement for six months. On January 30, 2007,
Mr. Rivard was sentenced to home confinement for four months. On January 31, 2007, Mr. Silverstein was sentenced to home
confinement for six months. The Federal Court has deferred its decisions on restitution owed by Messrs. Kaplan, Rivard and
Zar until a date to be determined.
The SEC filed related actions against each of the four former executives, alleging that they participated in a widespread
practice that resulted in the improper recognition of revenue by the Company. Without admitting or denying the allegations in
the complaints filed by the SEC, Messrs. Kaplan, Rivard, Silverstein and Zar each consented to a permanent injunction against
violating, or aiding and abetting violations of, the securities laws, and also to a permanent bar from serving as an officer or
director of a publicly held company. Litigation with respect to the SEC’s claims for disgorgement and penalties is continuing.
A number of other employees, primarily in the Company’s legal and finance departments were terminated or resigned as a
result of matters under investigation by the Audit and Compliance Committee, including Steven Woghin, the Company’s
former General Counsel. Stephen Richards, the Company’s former Executive Vice President of Sales, resigned from his
position and was relieved of all duties in April 2004, and left the Company at the end of June 2004. Additionally, on April 21,
2004, Sanjay Kumar resigned as Chairman, director and Chief Executive Officer of the Company, and assumed the role of
Chief Software Architect. Thereafter, Mr. Kumar resigned from the Company effective June 30, 2004.
In April 2004, the Audit and Compliance Committee completed its investigation and determined that the Company should
restate certain financial data to properly reflect the timing of the recognition of license revenue for the Company’s fiscal years
ended March 31, 2001 and 2000. The Audit and Compliance Committee believes that the Company’s financial reporting
related to contracts executed under its current business model is unaffected by the improper accounting practices that were in
place prior to the adoption of the current business model in October 2000 and that had resulted in the aforementioned
restatements, and that the historical issues it had identified in the course of its independent investigation concerned the
premature recognition of revenue. However, certain of these prior period accounting errors have had an impact on the
subsequent financial results of the Company as described in Note 12 to the Consolidated Financial Statements in the
Company’s amended Annual Report on Form 10-K/A for the fiscal year ended March 31, 2005.
As noted above, in September 2004, the Company agreed to, and the Federal Court approved, the DPA and the Consent
Judgment.
Under the DPA, the Company agreed to establish a $225 million fund for purposes of restitution to current and former
stockholders of the Company, with $75 million to be paid within 30 days of the date of approval of the DPA by the Federal
Court, $75 million to be paid within one year after the approval date and $75 million to be paid within 18 months after the
approval date. The Company made the first $75 million restitution payment into an interest-bearing account under terms
approved by the USAO on October 22, 2004.The Company made the second $75 million restitution payment into an interest-
bearing account under terms approved by the USAO on September 22, 2005. The Company made the third and final
$75 million restitution payment into an interest-bearing account under terms approved by the USAO on March 22, 2006.
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