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For a copy of the referenced report, see:


Report of CA Board's Special Litigation Committee


Newsday, April 14, 2007 article


Blaming the boss

Committee report claims co-founder of Computer Associates directed $2.2-billion accounting fraud

BY ROBERT E. KESSLER; Staff writer Mark Harrington contributed to this story

Charles Wang, the co-founder and former chairman of Computer Associates, directed and participated in the massive $2.2-billion accounting fraud at the company, according to a blistering report issued late Friday by a committee of outside directors of the company now known as CA.

The report said the company should pursue civil actions for damages of $500 million against Wang and a small circle of former executives around him, claiming they were responsible for fraudulently inflating the company's profit margin to artificially raise the price of the company's stock.

The report also calls for Wang to repay the hundreds of millions of dollars in company stock he received through his management of the company.

The report, filed in Delaware, was prepared at the request of the CA board in answer to civil lawsuits in Delaware and in U.S. District Court in Central Islip against the company, and many of its directors and officers, seeking damages for stock fraud.

In addition to calling for the company to bring a civil suit against Wang, the report has another purpose. It amounts to a legal brief by the current officials of the company, arguing that the only people who should be held liable for damages in the civil suits are Wang and the circle of executives around him. Those executives include his longtime protege Sanjay Kumar, who recently was sentenced to 12 years in prison for involvement in the scheme.

The essence of the fraud was the so-called 35-day month in which the company would backdate some sales made in one month to the previous month to match the expectations of Wall Street analysts, the report said, linking the practice to Wang.

In a rare public statement, Wang said he was "appalled" by the report. "This fallacious report does not serve the best interest of shareholders, customers and employees," he said.

Suggesting the report was based at least in part on information from Kumar, Wang said he found it "hard to understand how the special litigation committee could believe the information they were given was credible, when their sources are those who perpetrated the crimes at issue and then lied about them to both internal company investigators and the government."

Sources familiar with the criminal investigation into the company by the federal government have said that whatever went on at the company, there was never any evidence to bring an indictment against Wang.

The committee's report said it "has uncovered credible and corroborated evidence that Mr. Wang both directed and participated in the 35-day month practice by ... instructing subordinates ... to obtain additional revenues after the closes of quarters to be counted in the prior quarter in order to meet analysts' expectations and ... negotiating and participating in deals he knew to be backdated."

"Indeed, it is the [committee's] view that Mr. Wang was the direct cause of the 35-day month practice, both due to his actual conduct and the culture that he established, and that it existed for most, if not all, of his tenure as CEO," the report said.

Wang, who co-founded the company in 1976, left it in 2002.

The report portrays a company that for most of its history, according to one unnamed source, operated "as if he [Wang] were running it out of his garage." In addition, Wang was assailed for establishing a "culture of fear" that brooked no dissent and in which inexperienced people were promoted to positions for which they were not qualified.

The report found the five outside directors of the company at the time of the fraud were unaware of the illegal actions and shouldn't be held liable, including former New York Stock Exchange president Richard Grasso, ex-Sen. Alfonse D'Amato, and current Stony Brook University head, Shirley Strum Kenny.

Wang for the first time acknowledged that during the probe he met with lawyers hired by CA and he said he "fully cooperated with the U.S. government at all stages."

More fundamentally, Wang said, "As the founder of CA, I am devastated by what has happened to the company and feel personally wronged by Sanjay Kumar and the management team he installed."

Meanwhile, dissident shareholder Sam Wyly celebrated. "It's a great day for us," said William Brewer, a lawyer for Wyly. "How do you say, I told you so."

Staff writer Mark Harrington contributed to this story.


CA's Special Litigation Committee has concluded that claims should be pursued against:

Former chairman and CEO Charles Wang.

Former chief financial officer Peter Schwartz.

Former CA executives who have pleaded guilty to various charges: David Kaplan, former head of financial reporting; Stephen Richards, former head of worldwide sales; David Rivard, former head of sales accounting; Lloyd Silverstein, former head of the global sales organization; Steven Woghin, former general counsel; and Ira Zar, former chief financial officer.

It said it also has reached settlements:

$9 million

with former CA board member Russell Artzt, currently executive vice president of products.

$1 million

with Charles McWade, former head of financial reporting and business development.
Copyright Newsday Inc.



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