Backdating a computer
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.While outside auditors are sometimes blamed for not catching the practice, auditors must rely on data from their clients, and timing infractions can be very hard to spot, according to Richardson.Investigators say Computer Associates simply backdated contracts, so that auditors would see that the paperwork confirmed the company’s claims.
“While it appears innocuous to say it is revenue one day early, this type of practice allows companies to draw on future earnings to deliver earnings and revenue growth, to help justify high [price-to-earnings] multiples,” he notes, adding: “Clearly, while this appears innocuous, the consequences are far from that.” Late in September, the company agreed to pay 5 million in restitution to shareholders to settle a civil case brought by the Securities and Exchange Commission and to defer criminal charges by the U. Both men were forced to resign in April, about two years after the scandal broke. A number of other executives were implicated as well. Schonfeld, director of the SEC’s Northeast Regional Office, boiled the case down to its essence: “Like a team that plays on after the final whistle has blown, Computer Associates kept scoring until it had all the points it needed to make every quarter look like a win.” The SEC said the scheme began in 1998, possibly earlier, and continued through September 2000.There was another class of victims as well – employees.