Backdating a computer
When the company stopped the practice at the end of the first quarter of 2001, it fell short of the Wall Street earnings estimate and the share price fell by more than 43% in a single day.
Shares currently trade around , down from more than early in 2000.
At Computer Associates and many other companies, big portions of executives’ compensation depend on meeting specific goals.
Inflated figures meant Computer Associates executives were paid more than they should have been – extra compensation that came from shareholders’ pockets.
The .3 billion securities fraud case against Computer Associates has been called the last of the big Enron-era cases, involving alleged practices termed “the 35-day month,” “the three-day window” and the “flash period.” Certainly, there are some parallels: Each case involved a multi-billion dollar fraud that required participation by a wide group of top executives and others further down.
But the cases of the Houston energy-trading firm and the Islandia, N. Enron executives engaged in an extraordinarily complex hoax, creating a raft of outside businesses that could be used to conceal the firm’s mammoth debt.
The contracts that were backdated by a few days were real.
The company thus reported 60 cents in earnings per share, beating the consensus Wall Street forecast of 59 cents.
Moreover, executives at Computer Associates were big shareholders themselves, and many held enormous blocks of stock options.
They therefore had a big financial stake in the share price, and thus an incentive to inflate results.
During the four quarters of fiscal 2000, for example, the practice improperly inflated revenues by 25%, 53%, 46% and 22%, respectively.
The SEC said the goal was to meet or beat per-share earnings estimates of Wall Street analysts, a key to keeping a company’s stock price rising.
Computer Associates executives are accused of something far more prosaic: keeping the books open a few days after the end of the reporting period so revenues could be counted a quarter earlier than it ought to have been.