In a post last month, I wrote about the suicide of Huai, the former CEO of FalconStor Software, who was slated to plead guilty the next day to federal bribery charges. I noted that Wang, the co-founder and former CEO of Computer Associates (now CA), was a close friend of Huai, and that Wang and one of his cronies had made a mysterious appearance at Huai�s home later on the same day that Huai had shot himself in his front yard.
In an article posted last week on its website (subscription required), Newsday reported that the probe of allegations that Huai had paid bribes in order to secure $11.3 million in software contracts in 2008 and 2009, has yet to be resolved. Here�s an excerpt:
Huai's successor as FalconStor chief executive, James P. McNiel, told stock analysts Tuesday the company has spent $4.3 million on the probe, including $531,507 in the July-September quarter. FalconStor has said it is cooperating fully with investigators.
Asked by analysts on an earnings call when and if there would be settlement, McNiel said, "There's nothing new we can report."
Earlier this year the company set aside $2.2 million for a potential resolution of the case.
The report also noted that FalconStor has hired three executives to focus on accounting and international sales. One of those executives is Bryan Urquhart, who is succeeding James Weber as chief financial officer. What�s interesting about Urquhart is that from March 2000 to January 2007 he was senior vice president of finance and administration at � you guessed it � Computer Associates.
You may recall the accounting fraud scandal at Computer Associates, which landed former CA CEO Sanjay Kumar in prison, and which CA�s board of directors determined was the result of Wang having embedded a culture of pervasive fraud in the company since its inception. What you may not recall is the timing of the accounting fraud that was uncovered by federal authorities. Here�s an excerpt from a Securities and Exchange Commission report to help you out:
During the period from at least Jan. 1, 1998, through Sept. 30, 2000, Computer Associates prematurely recognized over $3.3 billion in revenue from at least 363 software contracts that Computer Associates, its customer, or both parties, had not yet executed, in violation of GAAP.
That means that for at least six months, Urquhart was senior vice president of finance and administration at CA when the accounting fraud was taking place. Now, let's be charitable and assume Urquhart knew nothing about the accounting fraud that was being carried out right under his nose. Why didn�t he know about it?
More to the point, why would FalconStor bring in someone with those credentials to take over as CFO following a massive bribery scandal? And why does there appear to be a connection between FalconStor and the CA good-old-boy network? Wouldn�t FalconStor have been better advised to distance itself from that crowd?