Computer Sciences Corporation Charged With Accounting Fraud

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Computer Sciences Corp. has agreed to pay a penalty of $190 million to settle charges of accounting fraud brought by the Securities and Exchange Commission. The company and some of its former executives face charges of “manipulating financial results and concealing significant problems” related to the company’s biggest and most “high-profile” contract.

Some of CSC’s former finance executives also face charges of not following basic international standards for accounting, which the SEC said increased the company’s reported profits.

Former Computer Sciences CEO, CFO to pay penalties

In a press release posted on the SEC’s website, the agency said it charged Computer Sciences and eight executives. Five of the executives agreed to pay to settle the cases filed against them. Former CO Michael Laphen agreed to pay the company over $3.7 million under the Sarbanes-Oxley Act’s “clawback provision.” He also agreed to pay a penalty of $750,000.

Former Chief Financial Officer Michael Mancuso agreed to compensate CSC $369,100 and pay a penalty of $175,000.

Five execs contest the charges

Three of the former executives who deny the charges are Robert Sutcliffe, Chris Edwards and Edward Parker. Sutcliffe was the finance director for CSC’s contract with the U.K.’s National Health Service. That contract was worth billions of dollars.

Regulators allege that the company’s disclosure and accounting fraud started after executives discovered that CSC couldn’t make some deadlines in the contract with the NHS. As a result of missing those deadlines, the company would lose money. However, the SEC alleges that Sutcliffe added some items to CSC’s accounting models in order to artificially raise the company’s profits. The agency alleges that Laphen approved the addition of those items.

Further, Computer Sciences repeatedly requested that the NHS pay more for less work, which the U.K. agency reportedly refused to do. Regulators accuse the company of basing its accounting models on those proposals, thus avoiding the necessity of posting major reductions in its 2010 and 2011 earnings reports.

Laphen, Mancuso accused of not complying with rules

Investigators said that, on more than one occasion, Mancuso and Laphen did not follow a number of accounting rules that required them to tell investors about the problems with the NHS contract. Further, the former executives reportedly made public statements about that contract which the SEC said misled investors on the company’s performance.

Additionally, the agency alleges that Mancuso hid a prepayment arrangement allowing Computer Sciences to meet its projections for cash flows from investors. The arrangement involved in essentially barrowing money from the NHS, paying a high interest rate on that money. The former executive reportedly said that they were hitting their targets “the old fashioned hard way.”

As of this writing, shares of Computer Sciences were up 0.35% to $67.95 per share.


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