NEW YORK - Three former Computer Associates executives admitted Thursday that they fraudulently recorded hundreds of millions of dollars worth of contracts in a broad conspiracy to inflate the software company's quarterly earnings.
The executives entered guilty pleas under cooperation agreements that prosecutors called an important move toward indicting other high-ranking company executives.
"The pleas represent a major advance in our continuing effort to bring to justice those at Computer Associates who are responsible for committing securities fraud," U.S. Attorney Roslynn Mauskopf said in a statement.
Former chief financial officer Ira Zar, the third-highest-ranking executive after former chairman Charles Wang and current chairman and chief executive Sanjay Kumar, pleaded guilty to securities fraud and conspiracy to commit securities fraud and obstruct justice.
According to the charges against him, Zar regularly met with high-level executives whom prosecutors described as Executive No. 1 and Executive No. 2. Zar conspired with the two executives to falsely record revenues from software licensing deals as having occurred in the previous fiscal quarter, according to the charges.
Prosecutors declined to comment on the identities of those two executives. A Computer Associates spokesman did not immediately return a phone call seeking comment.
The bookkeeping scheme was intended to pump up quarterly earnings reports to meet analysts' expectations and bolster the company's stock price, prosecutors said.
Prosecutors called the scheme "a systematic, companywide practice of falsely and fraudulently recording and reporting" revenue.
The Long Island software maker said it had billions of dollars in annual revenue in the late 1990s.
Reported revenues plunged after the company changed its accounting practices in the face of increased outside scrutiny.
Along with Zar, former senior vice president of finance and administration David Kaplan and former vice president of finance David Rivard pleaded guilty Thursday to conspiracy to commit securities fraud and obstruct justice.
"I agreed with other executives to create false books and records," Kaplan said. "I agreed to do these things in order to mislead the investing public."
Rivard and Kaplan's cooperation with the government means they will likely receive less than the maximum 10-year sentences allowed for the two charges. Zar could have faced a maximum of 20 years in prison.
The Securities and Exchange Commission also filed actions Thursday against Zar, Rivard and Kaplan, charging each of them with committing accounting fraud while at Computer Associates.
The three struck separate deals in which they agreed to disgorge the proceeds of their crimes and never again serve as officers of publicly traded companies.
Prosecutors referred to one fraudulent accounting practice as the "35-day month," prosecutors said, because company accountants would extend the booking of revenues in the final month of a fiscal quarter days beyond the true end of the month.
The SEC said that during the company's fiscal year 2000, Computer Associates "prematurely recognized" more than $1.4-billion in revenue from at least 116 contracts that had not yet been signed.
