CA's Kumar pleads guilty -- Newsday.com

Sanjay Kumar, who went from living in a mud-floored home in Sri Lanka to being chairman and chief executive officer of Computer Associates, pleaded guilty yesterday to orchestrating a massive fraud to keep the firm's stock afloat and lying about his actions to federal investigators.

Pleading guilty with Kumar in U.S. District Court in Brooklyn was Stephen Richards, a New Zealand native with a fondness for racing sports cars, who was executive vice president for worldwide sales for Islandia-based CA.

Kumar and Richards pleaded guilty to the same seven counts: securities fraud; conspiracy to commit both securities and wire fraud; three counts of filing false statements with the Securities and Exchange Commission; conspiracy to obstruct justice; and obstruction of justice. In addition, Kumar pleaded guilty to making false statements to FBI agents and Richards pleaded guilty to perjury for lying to investigators from the Securities and Exchange Commission. The minimum sentence each is facing is about 10 years.

"I knew my conduct was wrong," Kumar told U.S. District Court Judge I. Leo Glasser. "I take full responsibility ... I apologize for my actions."

Richards, who followed Kumar in pleading guilty, said, "I wish to express my apologies to the court ... The actions on my part have been inappropriate ... not representative of the person I think I am."

Both declined to comment further after they each were released on $5 million bail, as did Kumar's attorney, John Cooney, and Richards' attorney, David Zornow.

Amy Walsh, the chief federal prosecutor in the case, and Eric Corngold, the chief assistant U.S. attorney, also declined to comment.

The pleas came suddenly and surprisingly because their trial was scheduled to begin in two weeks and because they apparently did not involve a plea bargain. There also was no immediate indication that they had any information to give federal prosecutors against other officials at CA.

While they theoretically face a maximum sentence of more than 70 years, the actual sentence is expected to be much less.

Several sources said Kumar, who is a co-owner of the New York Islanders, and Richards decided to plead guilty after federal prosecutors turned over massive amounts of material that indicated that the obstruction of justice charges would be almost impossible to overcome, the sources said.

The overall scheme for which Kumar and Richards pleaded guilty to running and attempting to cover up essentially involved backdating hundreds of millions of dollars worth of sales agreements to make them appear as if they had occurred in earlier quarters of the fiscal year. This was known at CA as having "35-day months" or "keeping the books open," according to the indictment.

The aim was to make CA's profits match or exceed the estimate that Wall Street analysts expected the firm to report, according to the federal indictment filed two years ago.

Kumar was so anxious to get backdated agreements that at one point a CA salesman who successfully negotiated one e-mailed: "Stick a fork in me ... the eagle has landed. I'm taking my kids shopping tomorrow." According to the indictment, Kumar sent back an e-mail reading: "Shopping is on me. Mr. K."

Without any plea bargain, the sentences Kumar and Richards will face could be determined by the amount of the loss CA investors suffered as a result of their actions, the sources said.

In previous court papers, federal prosecutors have argued that the loss was $300 million, which could call for sentences of more than 20 years.

"It's going to be a battle over losses," said one source. Kumar and Richards will have to argue that while they manipulated the company's sales and earnings, in the end the sales were legitimate and investors did not lose substantial sums of money, the source said.

CA itself has avoided being indicted by cooperating with prosecutors, agreeing to pay a $225 million fine and hiring an independent monitor to oversee its financial operations.

Judge Glasser set Sept. 12 for sentencing.