Computer Sciences Corporation and eight former executives were charged with manipulating financial reports and covering up substantial issues about the company’s prestigious, multi-billion dollar contract with the United Kingdom’s National Health Service (NHS).

CSC’s accounting and disclosure fraud started when the company discovered it was unable to meet specific deadlines, which would result in lost profits.  To mask the lost earnings to its shareholders, Sutcliffe, CSC’s finance director overseeing the contract with NHS, added fictitious items to CSC’s accounting models that showed increased profits but did not produce profits in reality.

Laphen, another CSC executive, then approved CSC to continue to hide its losses by basing CSC’s accounting models on unofficial amendments instead of the existing contract.  NHS had repeatedly denied CSC’s proposed amendments to charge more money for less work.  However, CSC based its models on the unapproved amendments to avoid publicizing its inevitably reduced earnings.

Two officers, Laphen and Mancuso, failed to disclose the reduction in earnings to investors, which is a violation of multiple securities rules.  Laphen and Mancuso also misled investors about CSC’s future profits in public statements.  Mancuso lied to investors about a prepayment arrangement with the NHS that helped CSC meet its cash flow targets.  When discussing the subject, Mancuso wrongly assured investors that CSC was meetings its profit standards “the old fashioned hard way.”

Andrew Ceresney, the SEC’s Director of Division of Enforcement, said, “When companies face significant difficulties impacting their businesses, they and their top executives must truthfully disclose this information to investors.”  Because CSC lied to investors about the actual status of the NHS contract, Ceresney asserts that “the significant sanctions in this case against the company, CEO, and CFO reflect [the SEC’s] focus on ensuring that such misconduct is vigorously pursued and punished.”

In addition to the violations involving the NHS contract, CSC allegedly lied about CSC’s businesses in the Australian and Nordic regions.  Former finance executives involved with CSC’s international businesses were charged with neglecting basic accounting practices in an effort to increase published profits.

CSC’s Controller, Parker, and regional CFO, Banks, in Australia, also allegedly violated securities laws.  Parker and Banks overstated the company’s earnings by using reserved amounts to fictitiously increase CSC’s operating results by five percent in the first quarter of 2009.

In CSC’s Nordic region, CSC allegedly improperly accounted for client disputes, overstated company assets, and capitalized expenses in efforts to inflate production results and reach budgeted amounts.  Finance manager, Edwards, failed to record “prepaid assets” which fraudulently lessened expenses.  In another incident, Wakefield, finance director of the Nordic region, intentionally overstated CSC’s pre-tax income in Denmark up to seven percent.  Zilmer, CSC’s finance manager, further violated rules by assisting with the fraudulent reporting and bookkeeping in CSC’s Nordic office.

In this case of international fraud, CSC settled for $190 million, and five of the eight executives agreed to settle.

CSC will retain an independent consultant to review the company’s ethics and compliance codes. Former CEO Michael Laphen will pay $750,000 fine and will return more than $3.7 million in compensation under the Sarbanes-Oxley Act.  Former CFO Michael Mancuso will pay $175,000 fine and will return more than $369,000.  Australian Regional CFO Wayne Banks settled for over $10,000 in disgorgement fees plus $2,400 in interest.  Banks is barred from holding an officer or an accountant position in an SEC regulated company for four years.  Finance director of the Nordic region, Paul Wakefield, settled and will not practice as an officer or accountant in a SEC regulated business for three years.  Finance manager Claus Zilmer settled with the SEC.  Former executives Robert Sutcliffe, Edward Parker, Chris Edwards are disputing the charge filed against them.

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