The SEC just clawed back $4 million from the former CEO of tech giant CSC and accused it of fraud

Michael LaphenAPFormer CSC CEO Michael Laphen

The news from 56-year-old old outsourcing IT company Computer Sciences Corp keeps going from bad to worse.

In the last year, it’s suffered layoffs, filed a lawsuit against a CEO whose company it bought, and announced plans to split into two companies to combat falling revenues.

On Friday, the SEC alleged that eight former CSC executives engaged in “accounting and disclosure fraud” in multiple ways, including with a contract from the company’s largest customer, the United Kingdom’s National Health Service (NHS).

The SEC also said that of the eight former executives who were charged with “with manipulating financial results” five agreed to settlements, although these settlements do not mean the executives or the company have denied or admitted guilt. The three others are contesting the charges against them.

Meanwhile, CSC also agreed to pay a $US190 million penalty to settle the charges. This is on top of the $US97.5 million CSC agreed to pay to settle a class-action lawsuit in 2013 that arose from the accusations.

On Friday, CSC restated its earnings for the years in question, and announced it had put new accounting policies in place.

The SEC slaps the former CEO’s wrist … hard

Most significantly, former CEO Michael Laphen agreed to return to CSC more than $US3.7 million in his compensation under the clawback provision of the Sarbanes-Oxley Act. He also paid a $US750,000 penalty.

$US4 million is nothing to sneeze at, but for comparison’s sake, Laphen was paid $US12.5 million in 2011, which included a $US1.1 million salary, over $US4.6 million in stock grants and a $US1.3 million cash bonus (plus stock options, contributions to the pension plan and other other benefits). In 2010, he earned more than $US15.5 million. Laphen was CEO from 2007 through 2012.

Former CFO Michael Mancuso also agreed to return $US369,100 in compensation and pay a $US175,000 penalty. Other executives also agreed to cash penalties and one was barred from taking a job as an officer, or a director, or an accountant at SEC-regulated companies for four years.

The fact that the SEC stripped Laphen of some of his salray makes this settlement unusal, Matthew Schwartz, attorney for law firm Boies, Schiller & Flexner, tells Business Insider. (Schwartz is a former US Attorney who was involved in the investigations of Bernard Madoff and JPMorgan Chase Bank.)

“The most notable feature of the settlements announced today was that the SEC required CSC’s former Chief Executive Officer and Chief Financial Officer to return more than $US4 million in compensation, under the clawback provisions of the Sarbanes-Oxley Act,” Schwartz said in an email to us.

“Regulators and law enforcement have increasingly looked to ways to impose penalties beyond corporate fines, including industry bars, requiring institutions to terminate executives, and now compensation clawbacks,” he added.

What are these execs accused of doing?

According to the SEC press release, the story of what happened goes like this …

CSC was allegedly going to lose money on the NHS contract because it was “unable to meet certain deadlines.” Instead of disclosing that to investors, and taking “a large hit to its earnings” one of the accused executives “added items” to CSC’s “accounting models that artificially increased its profits but had no basis in reality,” the SEC alleges.

CSC Mike LawrieCSCCSC appointed CEO Mike Lawrie after Michael Laphen left

CSC was basically asking the NHS to pay it more money, and reporting its requests in its books as such requests were a done deal, when “in reality, NHS officials repeatedly rejected CSC’s requests that the NHS pay the company higher prices for less work,” the SEC contends.

Apparently, CSC was also borrowing large sums of money from the NHS at a high interest rate to meet cash flow targets, and failing to disclose the arrangement to investors, the SEC says.

On top of that, the SEC alleges that CSC was manipulating the books in its Australia, Denmark, and Nordic regions that inappropriately dealt with expenses.

In addition to these charges and settlements, the SEC required CSC to retain an independent consultant to review the company’s ethics and compliance programs, it said.

The company pointed out that Friday’s news stems from executives who no longer work there, and sent Business Insider this statement:

We are pleased to settle this long-standing civil investigation that focused largely on accounting issues from 2009 to 2012. Putting this matter behind us is in the best interest of CSC, our stakeholders, and our ongoing business transformation. From the outset, CSC cooperated with the SEC’s Division of Enforcement. The company installed new leadership in 2012, made adjustments to prior period financial statements in our SEC filings, and since the beginning of 2011 has instituted comprehensive enhancements to our compliance, financial control and disclosure programs. As part of the settlement agreement, CSC neither admits nor denies the SEC’s allegations.

Friday’s news follows a spate of other goings on at the company, including:

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