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Note:  The following article appeared in the Long Island edition only of the Sunday New York Times.


Long Island Weekly Desk; SECT14LI

Computer Associates Focuses on the Future


1,213 words
3 October 2004
The New York Times
Late Edition - Final
(c) 2004 New York Times Company


YOU can't say September wasn't a busy month at Computer Associates International. A week after resolving the investigation into its financial practices and praising the fortitude of its employees during the five-year inquiry, the company, which has its headquarters in Islandia, announced a reorganization that would lay off about 5 percent of its work force, or some 800 people, including about 200 on Long Island.

The first momentous event for the company last month was the indictment of Sanjay Kumar, Computer Associates' former chairman and chief executive, on charges of conspiring to commit security fraud and obstructing justice, and the deal with federal prosecutors that defers criminal prosecution in exchange for an 18-month period of government-monitored reform.

In discussing the five years of investigations conducted by both the Justice Department and the Securities and Exchange Commission, Lewis Ranieri, the company's chairman, said: ''The government chose to swing at the right people, not the shareholders and employees. It's in our best interest, and it's our sincere desire, that at the end of this 18-month process to make the government feel that they made the right decision. We can now get back to being a software company.''

Before that can happen, a number of loose ends must be tied up. Fourteen top executives left the company as a result of the investigations, five have pleaded guilty to charges and two more have been indicted. The company faces payment of $225 million in restitution to shareholders.

Perhaps most significantly, Computer Associates must convince shareholders and customers that its recovery is on track. It could take a while.

In the indictment handed down last month, federal prosecutors said the company perpetrated a ''massive fraud'' involving over $2 billion, followed by a conspiracy to hide the evidence. They added that Justice Department consultants spent months to recover e-mail messages suggesting fraudulent behavior from the hard drives of hundreds of desktop computers, even though Mr. Kumar had assured them that no such messages existed.

''I feel strongly that we were lied to,'' Mr. Ranieri said. ''Some of the other things that were said to me and the rest of us were simply not true.''

Jack Cooney, Mr. Kumar's lawyer, responded: ''Mr. Kumar is comfortable that he will have the opportunity to address the government's allegations in court at the appropriate time. We expect that some members of Computer Associates' board of directors will be witnesses, and the veracity of their present positions and their motives in asserting those positions can be tested at that time.''

Prosecutors contend that the e-mail messages show that Computer Associates executives discussed the practice of backdating contracts so revenues accrued in previous quarters, a practice known internally as ''the 35-day month.'' The scam allowed executives to collect bonuses based on exceeding sales quotas.

Mr. Ranieri said the company was now moving forward to implement what he described as vigorous financial controls while jettisoning the sales strategy that allowed Computer Associates to grow from a Garden City start-up to the world's fourth-largest software manufacturer.

A new senior management team is in place, a group recruited largely from outside the company and shaped by Mr. Ranieri, an investment banker and board member before he became chairman.

''There is a very substantial difference in terms of who's running this firm,'' Mr. Ranieri said. In a thinly veiled allusion to Mr. Kumar's ascension after more than a decade as the protege of Charles B. Wang, a co-founder of the company, Mr. Ranieri said, ''Four years ago, they simply changed the guy who said he was C.E.O.''

Through a public-relations representative, Mr. Wang declined to respond to Mr. Ranieri's comment.

Mr. Ranieri spoke during a conference call in which he was joined by Jeff Clarke, the company's new chief operating officer and ranking financial executive, and Kenneth Handal, its senior lawyer.

Mr. Ranieri cited plans to reclaim millions of dollars in bonus pay, stock options and other income obtained illegitimately by past executives. He did not specify how he planned to go about it, and he offered no timetable.

''We have already said, on a number of occasions, that we intend to pursue all of the bonuses and compensation that was granted wrongfully to the people involved, whether through obstruction of justice or manipulation of stock price,'' Mr. Ranieri said. ''That has been our intent for some time.''

Mr. Ranieri said he had not pressed for restitution when Mr. Kumar was forced out in April because he did not have the information then that he has now. ''I think there is a very fundamental difference between the statements made to me by Mr. Kumar when he took over and now,'' he said. ''When we asked Sanjay to step down as C.E.O., we had no knowledge firsthand of his complicity in the cover-up. We had to operate in the way we thought best at the time.''

Mr. Ranieri said most of the company's problems were caused by a small number of executives and was not systemic. ''The problem in the past was basically a handful of people among a staff of 15,000,'' he said. ''The work ethic of the people is extraordinary. They have gone through a hellish period the past five years. We don't have a culture problem here.''

Mr. Ranieri compared the work of turning Computer Associates around with his experience in mergers and acquisitions during the savings bank failures in the 1980's. ''I took over a number of companies that were in the process of failing or had failed,'' he said. ''In 1987, I took over a series of bankrupt thrifts and melded them into the largest depository institution in the state of Texas. In terms of the lack of controls, and in terms of the allegations of institutional wrongdoing, in many ways it was akin to this.''

Mr. Clarke, Computer Associates' chief operating officer and top financial executive since April, said that the company was overhauling its sales system, moving away from thousands of individual sales representatives trying to land corporate contracts in favor of a sales partnerships with other companies.

In many cases, the new system would involve bundling Computer Associates' software with products made by other manufacturers, said Mr. Clarke, who was previously a vice president of Hewlett-Packard. Often, the Computer Associates' name will not appear on the label, he said.

''Companies like Ernst & Young and Deloitte sell a solution, and we bundle our products into that solution,'' Mr. Clarke said, describing proprietary software sold by consulting companies. He also mentioned the company's plan to seek partnerships to bundle software into packages sold off the shelf.

''We believe there is solid opportunity for us to change the way we do things,'' Mr. Clarke said.

Photos: Lewis Ranieri, the chairman of Computer Associates, far left, and Jeff Clarke, the company's chief operating officer. A sign in the atrium, above, points up the company's new direction. (Photo by Louis Lanzano/Bloomberg News); (Photographs by Phil Marino for The New York Times)

Document NYTF000020041003e0a30003a


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