By Mark Harrington

June 30, 2004, 7:35 PM EDT

Ranger Governance, the Sam Wyly-led group that was twice rebuffed in seeking director seats on Computer Associates' board, has filed a lawsuit against CA executives past and present seeking return of more than $1 billion in "ill-gotten" bonuses and pay.

The suit, a so-called derivative action which Ranger filed on behalf of the company, has a calling beyond its stated financial goal of replenishing company coffers. According to the suit, filed Tuesday in federal court in Brooklyn, Ranger "seeks to send a message to executives the world over: there is a real and substantial downside to stealing from the corporate treasury."

Wednesday, according to Ranger lawyer William Brewer, CA law firm Sullivan & Cromwell said it was looking into the matter after CA directors initially ignored Ranger's requests. Brewer called the response "a day late and a dollar short."

In the letter to Brewer, CA's outside counsel stated the company was "continuing to review the matter of compensation" and pointed out that Ranger's comments to the press constituted "a breach of Ranger's obligations" under Wyly's $10 million non-compete agreement to refrain from attempts to control or even criticize the company.

At least one observer isn't taking it seriously.

"Most investors would have serious questions about their interests being represented by Wyly, considering his history of dealings with the company," said Gary Lutin, an investment banker who has led a CA shareholder forum. In addition to the $10 million payout, Wyly in 1979 also settled an investigation with the SEC without admitting wrongdoing.

Lutin questioned why CA's board, as a group, wasn't named in the suit. "That makes it look like it could be designed for an easy payoff negotiation," he said. Brewer called the claim "nonsense."

"The most important thing about this lawsuit is that it takes a lamp and shines it on a situation that continues to fester," Brewer said.

The court action had been widely expected. Ranger in a letter two weeks ago threatened to sue if it couldn't resolve questions of past executive compensation after CA restated $2.2 billion in past revenue. Ranger managing director Steve Perkins had been seeking a meeting with CA directors for months, but there's no indication he ever was ever taken seriously.

The suit names former CA executives Sanjay Kumar and Charles Wang, current executive vice presidents Russell Artzt and Gary Quinn, and a laundry list of past managers who have either been dismissed, left on their own, or pleaded guilty to past accounting improprieties. The suit erroneously says Quinn left the company in April. Kumar and Wang couldn't be reached.

Wyly, the Texas billionaire who made his fortune selling two companies -- University Computing Co. and Sterling Software -- to CA, was vacationing this week and unavailable for comment.

The CA board has been discussing a shareholder proposal requiring it to review bonuses based on erroneous financials. Directors "called us up and we're having a dialogue," said Con Hitchcock, an attorney for Amalgamated Bank's LongView Fund, based in Washington, D.C., which raised the issue. "At the moment the proposal is still live."

An attorney close to the matter who asked not to be named said Ranger's suit could be negated by a shareholder lawsuit settlement CA reached last year that set aside dozens of suits alleging financial misdeeds and executive enrichment. CA issued new shares valued at around $150 million to settle the claims, which restrict new suits against it and certain executives and directors. The attorney called Ranger's suit "pathetic."

 

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