Law & Owners Special Islanders Unit: Sanjay Kumar

In 2000, Charles Wang and Sanjay Kumar completed their $187-million purchase of the New York Islanders. Five years later, Kumar was indicted for securities fraud and obstruction of justice. In 2006, Kumar plead guilty and was sentenced to 12 years in federal prison and ordered to pay almost $800 million in restitution.

And you thought Rick DiPietro had a rough time in Uniondale.

However, unlike his former star-crossed employee, Kumar was the victim of only his own greed. One U.S. attorney called Kumar's creative accounting "the most brazen and comprehensive obstruction in the modern era of corporate crime." Kumar moved $2.2 billion - with a "b" - around Computer Associates' books, lined his own pockets with a few hundred million and his garage with at least two Ferraris. None of these things are with him in his New Jersey prison cell.

The Sri Lanka-born Kumar started at Computer Associates in 1987 after CA purchased the software company he was working for. He flew up the ladder at CA, getting named COO in 1994 and CEO in 2000.

According to a New York Times story at the time of the Islanders sale, Computer Associates was the third largest software company in the world and raking in over $6 billion in revenues. Kumar, at 38, was the company's No. 2 man and was on Forbes list of America's 40 Richest Under 40. Not bad for a couple of immigrants. Upon buying into the exclusive fraternity of pro sports owners, both men were folksy and attributed their success to good ol' fashioned hard work and gumption:

They both said their mothers reacted like typical immigrant moms at their latest endeavor. Mrs. Wang said she worried her son would be spreading himself a little too thin. And Mrs. Kumar told her son he should be saving for his children's education and shouldn't be spending so much. ''I told her, 'Mom, I don't think they need to worry,' '' Mr. Kumar said.

''When you start with nothing, you realize you could live without a lot,'' Mr. Kumar said. ''Having is nice, but there comes a point where having is meaningless and you have to do what you know is right.''

In 2002, the same year Kumar became the chairman of CA's board of directors, the U.S. Attorney's office began an investigation into the company's accounting. The feds wanted to determine if CA's lofty financial estimates had actually been achieved during the fiscal year 2000.

CALENDAR MAN

Two years later, Kumar, CA executive vice president Stephen Richards and five other executives were indicted for securities fraud and obstruction of justice. The indictment charged Kumar with being the ringleader of a scheme to backdate contracts to claim revenues in previous quarters. Holding the books open for an extra few days would create the appearance that the company had met its quarterly financial projections, therefore keeping the stock prices high, analysts bullish and investors happy.

Investigators determined that Kumar and others had been practicing an innocuously-named scam called the "35-day month." From the indictment:

34. For example, on or about October 4, 1999, a senior CA sales executive ("Sales Executive #1"), acting on the specific instructions of the defendants SANJAY KUMAR and STEPHEN RICHARDS, finalized a license agreement by which a CA customer ("Customer #2") agreed to pay CA approximately $176 million. The written license agreement fraudulently made it appear that the agreement had been finalized and signed on September 30, 1999. Based on the falsified license agreement with Customer #2, CA improperly recognized as revenue in the Second Quarter approximately $97 million.

The indictment cites multiple contracts fudged by Kumar, Richards and their accomplices between April 1999 and March 2000, some totaling as much as 35% of CA's total revenue for a single quarter. A number of CA sales associates celebrated the 35-Day Month along with their bosses, as evidenced by this friendly exchange:

w. On or about April 7, 2000, at approximately 11:20 p.m., Sales Executive #3 sent an e-mail to KUMAR and RICHARDS relating to the end of the negotiations with Customer #6 which read, in part: "stick a fork in me . . . [t]he eagle has landed. I'm taking my kids shopping tomorrow - on you! . . .[signed] Mr. B".

x. On or about April 8, 2000, at approximately 7:33 a.m., KUMAR sent an e-mail to Sales Executive #3 and RICHARDS which read: "Mr. B. Shopping is on me. [signed] Mr.K."

The first part of the indictment involves securities fraud and filing false documents with the SEC. The second part charges Kumar and Richards with obstruction of justice for lying to the FBI during the investigation and committing perjury while testifying to the SEC in 2003. The indictment says Kumar lied about the backdating practices going on at Computer Associates and what he knew about it, and willfully instructed CA's legal team to do the same.

Moreover, KUMAR and others concocted and presented to the Company's Law Firm an assortment of false justifications, the purpose of which was to support their false denials of the 35-day month practice. KUMAR and others knew, and in fact intended, that the Company's Law Firm would present these false justifications to the United States Attorney's Office, the SEC and the FBI so as to obstruct and impeded the Government Investigations.

Kumar and Richards initially pleaded not guilty, but changed to a guilty plea in April 2006. In November of that year, Kumar was sentenced to a dozen years in the cooler and later handed a bill for $800 million in restitution payments to investors and shareholders that lost money thanks to his shenanigans. But don't worry - the actual payout should be only about $52 million.

Richards was sentenced to seven years and a mere $29 million in restitution. His sentence was later reduced to time served.

NO. WAIT. HE DID IT.

From his cell in 2008, to the surprise of exactly no one, Kumar filed an appeal that placed the crimes squarely on Wang and other CA executives, as well as "friend to the Islanders" and former U.S. Senator Alphonse D'Amato. The appeal alleges that the 35-Day month was standard operating procedure at Computer Associates and was established by Wang even before Kumar joined the company.

Kumar, however, claims that he told this story to CA's internal investigators in 2006 and 2007 but that his version of the events never made it into the Special Litigation Committee's report that was made public, which is kind of odd considering it accused Wang of fraudulent accounting and urged legal action.

"Fraud pervaded the entire CA organization at every level, and was embedded in CA's culture, as instilled by Mr. Wang, almost from the company's inception," it said.

It also described CA under Wang as a "one-headed dragon" and said "no significant decisions were made without his participation and approval."

(Note: so a one-headed dragon like this. Not a multi-headed one like this)

The appeal was denied. Sorry, Sanjay.

But what exactly was Wang's role in this? Interestingly, Wang, the CEO and co-founder of the entire company, does not appear at all in the indictment document. Kumar was Wang's right hand, was made a multimillionaire at Wang's company and was trusted enough by Wang that they would purchase a pro hockey team together, which isn't exactly like splitting a pizza. Was a white collar crime this large actually happening right under Wang's nose, or is the real ringmaster still walking the streets?

Reporter Don Tennant, who doggedly followed the case for Computer World and IT Business Edge, is blunt in his assessment that Wang and Kumar should be still be working together... in the prison laundry. And that Kumar, despite needing to pay for his massive mistakes, was simply playing Otis to Wang's Lex Luthor.

So if Tennant's theory is correct, how is Wang still living the high-life and swinging high-profile business deals? Tennant says it's the lack of paper trail and a generously short statute of limitations:

It's widely understood that the reason Wang managed to get away with throwing Kumar under the bus and professing his innocence was simply that he was smart enough to avoid using e-mail and voicemail. As a result, investigators were unable to produce any physical evidence of his involvement in the accounting fraud that destroyed the lives of too many people, and that nearly destroyed his company. The statute of limitations in the case has now expired, so Wang will never go to prison, at least not for the wrongdoing that the CA board of directors' Special Litigation Committee said he committed at CA. But be assured of this: In 2010 he entered a prison of his own making that for him is far more horrific than being confined in a cell. Wang entered a prison of financial turmoil.

The "prison of financial turmoil" Tennant is referring to: Wang's twin investments in money pits NeuLion internet broadcasting services and a local club hockey team called the New York Islanders.

NEXT TIME ON LAW & OWNERS SPECIAL ISLANDERS UNIT: "Our Gang (Two of Whom Are Crooks)"

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Part One of a series. Read the rest of the series here.

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