Computer Sciences Corp. (CSC) has agreed to pay a $190 million fine to the U.S. Securities and Exchange Commission (SEC) in connection with charges of "manipulating financial results and concealing significant problems about the company’s largest and most high-profile contract".
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The Securities and Exchange Commission today charged Computer Sciences Corporation and former executives with manipulating financial results and concealing significant problems about the company’s largest and most high-profile contract.
The SEC additionally charged former finance executives involved with CSC’s international businesses for ignoring basic accounting standards to increase reported profits.
CSC agreed to pay a $190 million penalty to settle the charges, and five of the eight charged executives agreed to settlements. Former CEO Michael Laphen agreed to return to CSC more than $3.7 million in compensation under the clawback provision of the Sarbanes-Oxley Act and pay a $750,000 penalty.
Former CFO Michael Mancuso agreed to return $369,100 in compensation and pay a $175,000 penalty.
The SEC filed complaints in federal court in Manhattan against former CSC finance executives Robert Sutcliffe, Edward Parker, and Chris Edwards, who are contesting the charges against them.
Sutcliffe was CSC’s finance director for its multi-billion dollar contract with the United Kingdom’s National Health Service (NHS).
The SEC alleges that CSC’s accounting and disclosure fraud began after the company learned it would lose money on the NHS contract because it was unable to meet certain deadlines.
To avoid the large hit to its earnings that CSC was required to record, Sutcliffe allegedly added items to CSC’s accounting models that artificially increased its profits but had no basis in reality.
CSC, with Laphen’s approval, then continued to avoid the financial impact of its delays by basing its models on contract amendments it was proposing to the NHS rather than the actual contract.
In reality, NHS officials repeatedly rejected CSC’s requests that the NHS pay the company higher prices for less work. By basing its models on the flailing proposals, CSC artificially avoided recording significant reductions in its earnings in 2010 and 2011.
The SEC’s investigation found that Laphen and Mancuso repeatedly failed to comply with multiple rules requiring them to disclose these issues to investors, and they made public statements about the NHS contract that misled investors about CSC’s performance.
Mancuso also concealed from investors a prepayment arrangement that allowed CSC to meet its cash flow targets by effectively borrowing large sums of money from the NHS at a high interest rate. Mancuso merely told investors that CSC was hitting its targets “the old fashioned hard way.†■