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In advance of CA executives' fraud trial, federal prosecutors detail 'lavish lifestyle' as ...: Motive to cook the books
[March 29, 2006]

In advance of CA executives' fraud trial, federal prosecutors detail 'lavish lifestyle' as ...: Motive to cook the books

(Newsday (Melville, NY) (KRT) Via Thomson Dialog NewsEdge) Mar. 29--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 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.

The company, which has acknowledged financial misdeeds, is paying $225 million in restitution and cooperating with the government.

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.

Under terms of a Key-Employee Stock Ownership Plan originally valued at $1.1 billion that he shared with CA co-founders Charles Wang and Russell Artzt, Kumar in 1998 received restricted shares of CA stock valued at $330 million. The restriction that prevented its use as collateral was removed on June 22 after a special Computer Associates board vote, the government said.

"On or about June 30 - eight days [after the board vote] - Kumar drew down $51 million on a line of credit that was secured by KESOP stock; that day, the purchase of the hockey team was consummated," the government wrote. "Immediately thereafter, on or about July 3, 2000, while the markets were closed for the July 4 extended weekend, CA quietly let the air out of the 35-day month balloon."

Asked yesterday whether CA disclosed the board vote, whether it granted the collateral right to other executives or considered the allowance unprecedented, CA spokesman Dan Kaferle, in an e-mail exchange, wrote, "We have no comment for your story."

With the exception of former U.S. Sen. Alfonse D'Amato, CA's board from that period has been replaced by new members. D'Amato, who at the time was a consultant to Nassau Coliseum management firm SMG, helped broker the deal for Wang and Kumar to buy the Islanders. A call to his Albany office yesterday wasn't returned.

Gary Lewi, a former press secretary for D'Amato who is now a spokesman for Kumar and Richards, said in a prepared statement: "It would not be appropriate to comment on the specifics of these matters at this time. Both Mr. Kumar and Mr. Richards look forward to the start of the trial when these issues will be addressed fully. We remain confident that Mr. Kumar and Mr. Richards will be exonerated of all charges at the end of this process."

Kumar's ownership interest in the Islanders had been in dispute two years ago. Lewi could not comment on whether Kumar still owned the one-third interest.

Assistant U.S. Attorney Eric Komitee declined to comment. Spokesmen for the Islanders didn't return calls. Richards' attorney David Zornow also didn't return a call.

Prosecutors wrote they may also broach the topic of Kumar's "frequent personal use" of CA's "monumentally expensive aircraft," whose purchase, they noted, he directed; and Richards' "hobby" of racing Ferrari sports cars.

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