Dissident Investor Blasts CA Report

Newsday
Tribune Company

July 26, 2007

Months after a committee of CA Inc.'s board released a report detailing the company's past culture of accounting fraud but advised against pursuing claims against board members, lawyers for dissident shareholder Sam Wyly in a response this week blasted the effort as "a whitewash."

Wyly's response, served to CA on Tuesday, represents his Ranger Governance group's attempt to retain control of a lawsuit filed on behalf of the company against more than a dozen past and current CA directors and executives.

The CA board's report, Wyly's response charges, "does not depart from CA's historic strategy to admit as little as is necessary and to protect as many insiders as possible."

The filing claims the board committee focused too narrowly on only one element of wrongdoing that had been alleged against CA, despite evidence of other improper practices, and that it failed to recognize "viable claims against certain former executive and current and former board members" for their "acts and/or omissions."

In releasing its report in April, the CA "special litigation committee" reached a settlement with former CA director Russell Artzt for $9 million, recommended pursuing claims against CA co-founder Charles Wang and former chief financial officer Peter Schwartz, and advised the company to dismiss claims against current and past board members and some executives. Wyly's filing argues that inherent conflicts prevented the committee from properly pursuing all claims, and takes exception to a number of findings in the report.

An attachment to the filing identifies 18 former top CA executives, including former chief operating officer Jeff Clark, who Wyly says were never contacted by the committee for its report.

In a statement, CA spokesman Dan Kaferle defended the board committee report as "thorough, independent and complete."

Wyly's filing takes the board to task for failing to examine evidence of wrongdoing in addition to the 35-day month -- holding the close of fiscal quarters open beyond proscribed limits. Those include allegations CA executives entered into improper side agreements with clients, engaged in "wash" transactions lacking economic substance, and improperly induced clients to take unwanted products by offering extended payment terms and other "accommodations."

"We think the special litigation committee and some of its advisors have got a lot to answer for and we're anxious to have those questions answered," said William Brewer, an attorney for Wyly's Ranger Governance at the firm, Bickel & Brewer in Manhattan.

Ultimately, Wyly's claim seeks court permission to allow him and Ranger Governance to continue to pursue a broad range of claims on behalf of the company against individuals, even though the board would prefer the company pursue them itself. CA has reached settlements with two other law firms that had filed claims, agreeing to pay them a combined $1.05 million in legal fees. It argues that Wyly and his law firm have an inherent conflict because they are pursuing class-action claims against the company, a charge Brewer denied.

Wyly's filing accuses the CA board of "shamefully" allowing legal claims for malpractice against past CA auditor Ernst & Young to lapse because of the statute of limitations.

Wyly also claims the independence of the board's litigation committee itself was "compromised not only from the start, but throughout the entire process," noting that former litigation committee member Laura Unger formerly worked for CA director Alfonse D'Amato's U.S. Senate banking committee. She later stepped down from the litigation committee.

The report questions law firm Sullivan & Cromwell's independence from the outset, noting that Robert Giuffra, the chief attorney for the board's audit committee, once worked on D'Amato's U.S. Senate staff and is a "long-time friend" of D'Amato, who recommended Giuffra. (Unger also worked with Giuffra, the filing says).

"During the time it was supposed to be representing the audit committee, S&C did not advise the audit committee to take actions in the best interests of CA and its shareholders," the Wyly filing states. "Instead, S&C took the reigns in CA's defense against the ongoing government inquiry."

It accuses the law firm of failing to promptly report evidence against CA's executives and of helping draft a press release that it claims "misrepresented the extent of the fraud at the company." Sullivan & Cromwell later became CA's defense and outside counsel.

Giuffra in an interview noted the law firm's work for CA's audit committee has been largely praised by those involved in the case, and he denied any improprieties.

"Wyly and his attorneys' brief is not surprising because he wants to extract more attorneys fees from CA and its shareholders," Giuffra said. "Sullivan & Cromwell did an excellent job for CA, uncovering wrongdoing, cleaning up the company and helping turn the company around ... "