Computer Associates Finance Execs Enter Guilty Pleas

According to the SEC, CA improperly held its books open at the end of each quarter in fiscal 2000, which ran from April 1, 1999, to March 31, 2000, and improperly recorded revenue from contracts that had not been executed before the end of the quarter. Both Zar and Rivard, the heads of sales accounting, backdated their own signatures, the SEC alleges. Rivard also knew that CA customers were backdating signatures on contracts, according to the SEC.

For all of the quarters of fiscal 2000, CA prematurely recognized more than $1.4 billion in revenue from at least 116 contracts that the client or CA signed after the quarter closed, the suit claims. At least 18% of revenue in the first quarter, 33% of revenue in the second quarter, 26% of revenue in the third quarter and 7% of revenue in the fourth quarter involved contracts not executed by CA or the company's clients by the quarter's end.

In fiscal year 2000, CA met or exceeded the Wall Street consensus estimate. But CA missed its earnings estimate in the first quarter of fiscal 2001, when the company refrained from recognizing revenue prematurely, and its stock plummeted more than 43% in a single day, according to the SEC.

The trio's guilty pleas come on the heels of another former CA executive, Lloyd Silverstein, pleading guilty to obstruction of justice in January -- the same day the SEC filed a civil complaint charging him with accounting fraud.

In its complaint against Silverstein, the SEC said some CA employees referred to the company's extended quarters practice as its "35-day month" because quarters were generally extended by at least three business days.

The period in question predates the move by CA to a new subscription revenue model under which it recognizes revenue incrementally over the life of a contract -- rather than upfront as it previously did. The period, however, followed a controversial compensation package in which CA's top executives received about $1 million after the stock reached a certain trigger point. Executives had to return some of that bonus in a separate legal action.

Shares of Computer Associates fell 14 cents, or 0.5%, to close Thursday at $27.77.

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