03.29.06

Computer Associates’ Islanders Scam

Posted in Hockey, The Law at 1:49 am by

Perhaps someone other than Stan Fischler should’ve done the accounting? Newsday’s Mark Harrington on the forthcoming Richards/Kumar trial.

A fondness for exotic cars, “frequent” personal use of a Gulfstream V corporate jet and a $51-million loan backed by his restricted Computer Associates stock to buy one-third of the New York Islanders all may play cameo roles in the upcoming securities-fraud trial of two former CA executives.

In papers filed this month in advance of the trial in May, federal prosecutors said they intended to make an issue of the stock holdings and “lavish lifestyle” of former chief executive Sanjay Kumar (above, left) and co-defendant Stephen Richards to allege they had motives to manipulate the company’s books in the $2.2 billion accounting scandal. Kumar and Richards have pleaded not guilty to securities fraud, obstruction of justice and conspiracy charges.

In one of the more illuminating sections of the March 3 filing, the government draws a direct correlation between the $51 million line of credit Kumar secured on June 30, 2000, to buy his Islanders interest and the company’s July 3, 2000, announcement that it would miss financial projections. The latter disclosure, released just before midnight during the July 4 holiday weekend, caused CA stock to plummet 43 percent, or a collective $13 billion, when the market reopened July 5.

Kumar was able to use restricted CA stock as collateral for the loan because the CA board had voted days before the purchase to ease a restriction on the sale or transferral of the stock, prosecutors said. The vote took place the same day a Delaware court approved a settlement forcing key CA executives to return 4.5 million shares of stock from the plan.

“The Islanders purchase likely caused the 35-day month practice to extend for more quarters than it might have otherwise existed,” prosecutors charged.

The 35-day month refers to CA’s extending financial quarters beyond their close date so that more sales could be piled on, a violation of federal securities law.

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