Last week Computer Associates, which last year began aggressively marketing its vast security offerings, posted a quarterly profit for Q3, compared to a loss a year ago. But the good news was tempered a day later when one of its former senior executives pleaded guilty to obstructing justice during a federal probe into the software giant's previous accounting practices.
On Thursday, former senior finance vice president Lloyd Silverstein, 48, admitted to lying to Securities and Exchange Commission (SEC) officials about whether the company booked revenue from unsigned contracts, among other illegal accounting practices. Last October the company fired Silverstein and other senior financial officers, including CFO Ira Zar, after CA's internal investigation uncovered improper bookkeeping.
CA is accused of recording revenue from software contracts that weren't finalized, backdating contracts and holding open its books after the quarter ended in fiscal year 2000. In all, authorities believe about $1 billion on nearly 100 contracts was used to boost revenue that year from 5.5% to 33%, resulting in better market performances. Once the allegations came to light, CA's stock dropped 43% in a single day.
Silverstein's guilty plea in a U.S. District Court in Brooklyn, N.Y., "is the first step in uncovering a corrupt conspiracy at Computer Associates to thwart and obstruct the investigations," said U.S. attorney Roslynn Mauskopf in a statement.
Last summer, CEO and chairman Sanjay Kumar told Information Security magazine he believed his company would prevail in the probes, but a few months later he fired top ranking officials when his company's investigation ended. The findings were turned over to federal authorities, which ultimately led to last Thursday's settlement. Silverstein now awaits sentencing, which could include up to five years in prison and $250,000 in fines.
CA last week reported a net income of $22 million for Q3, compared to a $44 million loss a year ago. Its stock fell about 4% to $27.78 a share immediately following Silverstein's guilty plea a day later.