Kukla's Korner

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Gary’s Dirty Little Secret

By George Malik Remember John Spano? The guy that tried to buy the Islanders in 1997 for $168 million, though he had a net worth of $2 million? The NHL was truly embarrassed by parading around a pauper as a franchise's saviour. The Isles were sold to Howard Milstein Steven Gluckstern in June 1999, and the two promptly bungled a deal to build a new rink on Long Island, and had Mad Mike Milbury trade Todd Bertuzzi, Bryan Berard, Ziggy Palffy, and Bryan McCabe away to clear salary space. Gary Bettman and the NHL's Board of Governors breathed a huge sigh of relief when Charles Wang and Sanjay Kumar, the owner and CEO, respectively, of Computer Associates, came forward to buy the Isles... But the honeymoon was short-lived...

On March 11th, 2002, four class-action lawsuits were levied against Computer Associates’ owner Charles Wang, CEO Sanjay Kumar, and Stephen Richards, the head of CA’s sales department.  They were charged with falsifying their sales figures in 1998 and 1999 to inflate the price of CA’s stock.  Why?  Mr. Wang, Mr. Kumar, and Mr. Richards received almost a billion dollars (combined) in CA stocks in 1998. 

Uh-oh, Gary!  Three frauds in a row?  Bettman was surely sweating this one. 

Things got worse before they got better. 

In 2004, Kumar and Richards were indicted on ten charges of “securities fraud conspiracy and obstruction of justice.” 

Federal prosecutors alleged the following:

[T]he Department of Justice announced that CA has been charged with, and accepted responsibility for, the illegal conduct of its former executives and has agreed to pay $225 million to compensate victims of the fraud, among other reparations. If CA abides by the terms of the agreement after an 18-month period, the U.S. Attorney’s Office has agreed not to prosecute CA. That deal, however, doesn’t protect any individuals from prosecution, the DOJ said in a statement.
Comey said the defendants are “accused of perpetrating a massive accounting fraud that cost public investors hundreds of millions of dollars when it collapsed.” The defendants “allegedly tried to cover up their crimes by lying,” he said.
The indictment lays out the so-called “35-day month” as the centerpiece of the accounting fraud scheme. According to the government, CA engaged in a systematic practice of fraudulently recording and reporting within a fiscal quarter revenue associated with license agreements, even though those agreements hadn’t been finalized and signed during the period.
Kumar and Richards, the indictment says, personally advanced the goals of the 35-day practice. Kumar and former CA Chief Financial Officer Ira Zar kept CA’s books open at the end of fiscal periods in fiscal year 2000 and sales managers were told by them to finalize and then backdate license agreements. The government said the extent of the fraud wasn’t known until April 26, when CA filed forms with the U.S. Securities and Exchange Commission that showed $2.2 billion of revenue was booked prematurely.

In September of 2004, federal prosecutors decided to investigate Wang’s involvement in the fraudulent claims:

Neither Wang nor Artz, co-founders of the company, have been implicated in the securities fraud yet although they could be at risk with the government, which privately admits Wang is being investigated, pushing the clock back. Wang was CEO of the company in 1998 when Kumar, his successor, was president and COO. Kumar didn’t become CEO until August of 2000. Artz is executive VP of CA responsible for its eTrust security line.
CA’s agreement anticipates the government pursuing “criminal prosecution” and “civil trial or other legal proceedings.” It also anticipates that CA itself might get the money that people disgorge. Then again, it also anticipates that CA could wind up a defendant in the proceedings.
With Kumar backed into a corner and facing serious jail time, his only bargaining chip will be to rat out Wang and claim that backdating contracts was a practice he inherited from him, sources close to the situation say.

How convenient, eh?  Now both owners may be facing federal charges… I wouldn’t have wanted to be Bettman’s deodorant as he tried to pitch locking out players because they were bankrupting once-proud franchises…

Bettman had to sweat for two years, but 2006 brought good news for him and the NHL:

Computer Associates (CA) former CEO and head of sales both added their guilty pleas to those of five other former company executives yesterday, admitting fraud, obstructing justice, and perjury.
Former CEO Sanjay Kumar and his head of worldwide sales Stephen Richards presided over a “systemic, company-wide practice of falsely and fraudulently recording and reporting…fiscal quarter revenue,” the US Attorney’s Office said in a statement.
Roslynn Mauskopf, United States Attorney for the Eastern District of New York, said the guilty pleas were the result of an investigation into “a culture of corruption and fraud at Computer Associates”.
...
Kumar and Richards also admitted lying to their lawyers about the fraud, and telling porkies to federal investigators when they came round asking awkward questions about proper accounting practices, probity, corporate governance, and such like.
Kumar is also charged with bribing someone with millions of dollars to prevent him reporting the fraud to the authorities.
Sentencing is scheduled for 12 September 2006.

That sentencing was delayed till October 12th, but something even better happened on May 13th:

Charles Wang, founder of CA Inc., will gain control of the New York Islanders hockey team as part of a settlement with Sanjay Kumar, his former protégé and business partner, according to a person briefed on the agreement.
Mr. Wang will pay Mr. Kumar $1-million (U.S.) a year for nine years as part of an agreement overseen by National Hockey League commissioner Gary Bettman, said the person who asked not to be identified because the details are confidential. The settlement untangles assets that Mr. Wang and Mr. Kumar amassed together over 19 years.
The agreement, following four years of negotiations, severs ties between the men two weeks after Mr. Kumar admitted to leading a $2.2-billion accounting fraud as chief executive officer of CA. The two paid $175-million for the Islanders in April, 2000, as shares in CA, then Computer Associates International Inc., were near record highs.
The Islanders are worth $200-million to $250-million, among the more expensive in the NHL because a contract with Cablevision Systems Corp., the biggest cable-TV provider in New York State, awards them large payments, said Marc Ganis, president of sports industry consultant SportsCorp Ltd. in Chicago.
Mr. Wang will help build a new Nassau Coliseum, where the Islanders play, as part of a $1.6-billion sports and retail complex being developed with Reckson Associates Realty Corp.

Now you know why Charles Wang has free reign to do whatever he pleases, regardless of whether his actions embarrass the NHL. 

As far as Bettman is concerned, the alternative—admitting that the Isles’ owner may or may not have helped commit $2.2 billion in fraud—is much worse than seeing Rick DiPietro receive a 15-year contract.

Speaking of which, the last word goes to Mr. Wang himself:

“This is not a big deal,” Charles Wang, the Islanders’ owner, said at a news conference. “If this is what you believe in as a franchise, then get the pieces right and put them in place. You have to have a commitment to who you’re working with. I’ve done this all my business career. Now I’m doing it in sports and everybody is like: ‘Oh my God. How could he do that?’ ”

Filed in: NHL Talk, George James Malik, | KK Hockey | Permalink
 

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Paul Kukla founded Kukla’s Korner in 2005 and the site has since become the must-read site on the ‘net for all the latest happenings around the NHL.

From breaking news to in-depth stories around the league, KK Hockey is updated with fresh stories all day long and will bring you the latest news as quickly as possible.

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