CA's CEO Ousted Amid Accounting Probe

UPDATED: Wall Street sends mixed signals about Computer Associate's decision to oust Kumar.

UPDATED: Wall Street reaction to the ouster of Computer Associates former chairman of the board and CEO Sanjay Kumar was mixed as the market closed Wednesday.

CA's new chairman of the board, Lewis Ranieri, announced on Wednesday morning the company's decision to drop Kumar, who helmed the software giant through one of the biggest financial scandals of 2003.

Despite the instability an upheaval of this sort normally creates on trading floors, shares closed at $26.66, a $1.09 gain on the day. In fact, since the announcement, the stock has gone nowhere but up, perhaps a sign that shareholders are convinced this is the right move for the company.

Although Kumar is officially out of the top executive and board spots, he will remain on the Islandia, N.Y.-based software company's payroll, in the newly created position of chief software architect.

Lewis Ranieri, another director on the CA board, will take over the chairmanship and begin the process of finding an interim CEO before settling on a new executive to take charge of day-to-day operation.

"We believe the decisions we have made today are fair and responsive to the situation and in the best interests of CA's customers, shareholders and employees," the newly-minted chairman said in a statement. "The changes in Sanjay's role are not based on the conclusion that he engaged in any wrongdoing. Nonetheless, the conduct in question occurred during his tenure, and the board felt this action was appropriate."

Kumar's departure from the board of directors caps a tumultuous period for an enterprise software company that reached a boiling point in August, when it agreed to settle two class-action lawsuits for financial improprieties to the tune of $144 million.

Ranieri pointed out in his statement that the decision to remove Kumar was not for any real or perceived wrongdoings, but because he was in charge when the activities occurred.

"He is highly regarded in the industry and has made remarkable contributions to CA's business," he said.

Earlier this week, CA announced it had fired nine employees in its finance (5) and legal (4) departments in the wake of a continuing internal probe of the financial irregularities. An initial finding of the company's Audit Committee found "prematurely recognized revenue in fiscal [year] 2000 on the basis of software license agreements that were signed in a later quarter," but contended financial reports from 2002 and forward were in place after CA's adoption of a "New Business Model" in October 2000.

On Monday, Kumar made a statement that's almost prophetic in light of Wednesday's events: "As the Audit Committee wraps up its work and takes these remedial actions, the management team has continued to focus on the business at hand, as we have in the past months."

On April 8, Brooklyn prosecutors said three former CA finance executives -- Ira Zar, CFO, and two former senior vice presidents of finance, David Kaplan and David Rivard -- would plead guilty to unspecified federal charges.

In December, the company announced it was under investigation by the SEC for those same alleged accounting misdeeds. Financial executives within the company are accused of cooking the books to make it appear the company was getting more revenue than it actually was.

The committee's chief, former Securities & Exchange Commission (SEC) chief accountant Walter Scheutze, is expected to determine soon whether CA will need to restate all previous financial reports going back to 2000 or earlier. Officials don't discount the possibility of civil or criminal proceedings, fines or suspensions in light of audit results.

Standard & Poor credit analyst Philip Schrank said his organization's downward rating is a result of the continuing scandal, as well as the disruption caused by the departure of so many company executives.

"This presents a near-term management void and potential disruption as a new management team transitions into place," he said in a statement.






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