23 January 2004 A former finance executive at Computer Associates (CA) claimed in a US court yesterday that the systems management giant routinely backdated customer contracts to boost the value of its shares.
Lloyd Silverstein, who resigned as senior vice president of finance in October 2003, pleaded guilty in a Brooklyn court to a federal obstruction charge and agreed to co-operate with investigators probing accounting practices at the Islandia, New York-based software company.
Silverstein told the court that improper revenue recognition practices were “widespread” — and were condoned and even administered by senior executives. He went on to allege that “several” unnamed executives told him to lie to investigators.
Silverstein’s plea is the most significant breakthrough so far in a two-year investigation into CA’s accounting practices by the Securities and Exchange Commission (SEC), the US stock market regulator.
But the investigators do not expect it to be the end of their probe. “This is the first step in uncovering a corrupt conspiracy at Computer Associates to thwart and obstruct the investigations being conducted by this office and the SEC,” said Roslynn Mauskopf, the US attorney for the eastern district of New York.
The SEC believes that improper accounting practices were conducted by CA for several years.
In the company’s 2000 fiscal year alone, the SEC estimates that $1 billion in revenues from 95 contracts were booked in a prior quarter to that in which the deals were closed. This practice helped to boost CA’s share price by enabling it to meet or beat analysts’ quarterly expectations, said the SEC.
The SEC added that the policy of extending quarters — known as the ’35-day month practice’ — was one of “many” improper procedures followed by CA.
In a statement issued following Silverstein’s plea, CA said that its audit committee had uncovered evidence of premature revenue recognition in 2000 and that Silverstein and two other senior accountants at the company had been told to resign over the issue.
CA also claimed that Silverstein “lied” to the company in an interview in August 2002 when he denied such practices existed.
The statement added: “The audit committee and the company are continuing their efforts to cooperate with the government’s ongoing investigation and are committed to resolving these problems and putting these matters to rest.”