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June 5, 2015 6:10 pm

SEC secures $190m from CSC over fraud

Gina Chon in Washington

US authorities secured a $190m payment from Computer Sciences Corporation and the return of $3.7m in compensation from its former chief executive for allegedly manipulating financial results related to the company’s multibillion-dollar contract with Britain’s National Health Service.The Securities and Exchange Commission also brought civil charges against CSC, which provides services to governments around the world, and eight of its former executives, for hiding problems about the contract with NHS, which has racked up billions of dollars in bills over a failed patient IT programme that the company was supposed to help set up.

The former chief executive Michael Laphen agreed to return his pay and and a $750,000 penalty. Former finance chief Michael Mancuso will give back $369,100 and a $175,000 penalty.

The SEC also charged three former CSC finance executives who worked on the company’s international businesses. Robert Sutcliffe, Edward Parker and Chris Edwards, who are contesting the charges, are accused of ignoring basic accounting standards to increase reported profits.

The five other former executives settled with the SEC. The CSC and finance executives in Australia and Denmark also manipulated the financial results for businesses in those regions, the SEC said.

The NHS abandoned plans four years ago to develop a centralised electronic patient record database after cost overruns. British MPs have called the NHS database a fiasco, with estimates of the final costs hitting about £10bn.

The original CSC contract was for £3.1bn, but in 2011 NHS sought to renegotiate the terms because of delays in developing software.

CSC’s accounting and disclosure fraud began after the company realised it would lose money on the NHS contract because it could not meet deadlines, the SEC said. To avoid a hit to its earnings, Mr Sutcliffe allegedly adjusted CSC’s accounting models, which artificially increased its profits but “had no basis in reality,” the SEC said.

With Mr Laphen’s approval, CSC also escaped financial consequences by basing its models on contract amendment proposals rather than the actual contract, the SEC said.

But NHS officials had repeatedly rejected CSC’s requests that the NHS pay higher prices for less work, the agency said.

Mr Mancuso also hid from investors a pre-pay arrangement that allowed CSC to meet its cash flow targets by borrowing large amounts of money from the NHS at a high interest rate, the SEC said.

“When companies face significant difficulties impacting their businesses, they and their top executives must truthfully disclose this information to investors,” said Andrew Ceresney, head of the SEC’s enforcement division. “The significant sanctions in this case against the company, CEO and CFO reflect our focus on ensuring that such misconduct is vigorously pursued and punished.”

CSC, which did not admit or deny the allegations, said new leadership had been in place since 2012, and that the company had adjusted financial statements. Since 2011, it has also improved its compliance, financial control and disclosure programmes.

“We are pleased to settle this longstanding civil investigation that focused largely on accounting issues from 2009 to 2012,” CSC said. “Putting this matter behind us is in the best interest of CSC, our stakeholders and our ongoing business transformation.”

Lawyers for Messrs Laphen and Mancuso did not respond to requests for comment. Messrs Sutcliffe, Parker and Edwards have not yet retained legal representation.