CA Ex-Executives Plead Guilty,
Call Fraud at Firm Pervasive

Three former high-level finance executives at Computer Associates International Inc. pleaded guilty to federal criminal charges, telling a judge that accounting fraud at the software maker was pervasive as the company struggled to meet Wall Street's earnings projections in the tech boom.

One of the three, former Chief Financial Officer Ira Zar, the highest-ranking executive so far netted in the two-year-old probe, pointed to two other, unnamed "high level" executives who conferred with him frequently at quarter's end to determine whether the reporting period should be kept open to help make numbers. The admission raises the prospect that the probe could widen beyond CA's finance department.

"The investigation is proceeding, and the investigation is taking a rapid turn," Assistant U.S. Attorney Michael Cornacchia said. The executives who pleaded guilty yesterday, he said, were "the core of the finance part of the company."

Mr. Zar pleaded guilty to one count each of securities fraud and securities-fraud conspiracy, as well as to an obstruction charge. He faces a maximum of 20 years in prison. David Rivard and David Kaplan, former vice presidents responsible for sales accounting and financial reporting, respectively, entered guilty pleas to the securities-fraud, conspiracy and obstruction charges. They face maximum sentences of 10 years. All three agreed to cooperate with the Justice Department and the Securities and Exchange Commission. They follow former finance executive Lloyd Silverstein, who pleaded guilty to obstruction in January and is cooperating.

Mr. Zar's plea, made before U.S. District Judge I. Leo Glasser of the Eastern District of New York in Brooklyn, is crucial to investigators because the 21-year CA veteran was seen as influential. In charging Mr. Zar, prosecutors took pains to note that he reported directly to Sanjay Kumar, CA's chief executive, though they didn't identify Mr. Kumar by name.

Mr. Kumar was one of three executives, including company founder Charles Wang, who received a $1 billion restricted stock award in 1998 that was contingent on a rising stock price. Mr. Wang has denied any wrongdoing.

CA said in a statement that the pleas related to past events and noted that the board's audit committee had forced all three of the men to resign after a law firm the board hired began an investigation.

Like the others, Mr. Zar reached a plea deal with prosecutors, and lawyers say it is unlikely that they would reach such a deal with a high-ranking executive if they didn't believe he could implicate central figures. The U.S. attorney for the Eastern District indicated in a statement that prosecutors would continue to go after top figures. The pleas "demonstrate the corrupt culture in Computer Associates' management," Roslynn R. Mauskopf said.

Mr. Kumar has consistently denied any wrongdoing. His lawyer, Jack Cooney, issued a statement saying: "Sanjay Kumar has cooperated fully with the investigations being conducted by the Computer Associates audit committee, by the SEC and by the U.S. attorney's office. He has no further comment except to say that he is entirely engaged in directing the operations of the company."

The three men's statements in court, along with the charging documents filed against them yesterday by prosecutors and the SEC, paint a picture of a finance department that all but adopted a formal policy of keeping the books open after the end of a quarter, allowing extra revenue to be squeezed in if it looked as if the company would fall short of the projections it gave financial analysts and the public.

To cover up the scheme from outside auditors, according to the charges the men pleaded guilty to, they snipped date-stamps off faxed documents and added fake dates to contracts.

In one incident in early January 2000, prosecutors charged, Mr. Zar and the two unnamed executives determined CA was $30 million short of the revenue needed to meet earnings estimates, even after adding in late-booked contracts. The second executive directed a sales manager to land a new contract, and one was signed -- backdated -- for $60 million, according to the charge. Mr. Zar then booked $35 million of that contract's revenue into the December quarter, allowing the company to meet estimates, the charge says.

David Gourevitch, a New York defense lawyer who has worked in the SEC's enforcement office, says, based on past practice, government lawyers "expect this plea presumably to lead to others or further the investigation." He said that the finance chief, who frequently deals face to face with the CEO, is "the gateway to the executive suite."

The SEC concurrently filed civil actions against the three, charging them with a host of securities violations. In all, the SEC said, the men helped CA book more than $1.4 billion of revenue from at least 116 contracts in the wrong quarters in fiscal 2000.

Separately, CA fired its general counsel, Steven M. Woghin. Two weeks ago, CA had said Mr. Woghin was leaving his job as general counsel but being reassigned to another position. Mr. Woghin's lawyer didn't return calls.

Write to Charles Forelle at charles.forelle@wsj.com

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