CA may avoid corporate indictment
BY MARK HARRINGTON
STAFF WRITER
September 8, 2004
Computer Associates International Inc. is closing in on a settlement with
federal prosecutors that could avoid the harsh penalty of a corporate
indictment, turning instead to a deferred prosecution, a substantial fine
and possibly even the appointment of a monitor, sources familiar with the
case said.
The discussions come as CA considers a companywide staff reduction of around
10 percent of its 15,000-person workforce within a month to cut costs,
according to other sources.
CA declined to comment on the government settlement negotiations, or the
prospect of layoffs other than to say: "As we indicated in the release of
first-quarter earnings, we are taking a hard look at our expense structure
and looking for ways to be more efficient and cost effective," according to
spokesman Dan Kaferle.
Robert Nardoza, a spokesman for U.S. Attorney Roslynn Mauskopf, also
declined to comment.
A possible agreement with the government would mark a crucial milestone in
concluding two-year probes of CA's accounting in a way that would avoid the
more serious alternative of a criminal indictment of the company, which
would diminish confidence in its ability to do business. A source said the
fine could reach hundreds of millions of dollars.
One expert said a deferred prosecution -- essentially a corporate probation
-- appeared a more appropriate resolution of the case.
"I would certainly not have recommended an indictment," said Ross Albert, a
former SEC senior counsel who has worked with the Justice Department, and is
now an attorney at Morris, Manning & Martin in Atlanta, stressing his
opinion was based on news reports. "The standard order of procedure is to go
after individuals and hammer them, not the innocent employees" and
shareholders.
CA has already restated $2.2 billion in fiscal 1999 and 2000 revenue, and
precipitated the departures of more than a dozen officers and managers as a
result of acknowledged accounting irregularities. Four top finance officials
have already pleaded guilty to criminal charges, including securities fraud
and obstruction of justice.
In connection with the proposed agreement, as many as two more former top CA
officials could to plead guilty to charges including obstruction of justice,
according to an attorney familiar with the matter.
CA has acknowledged since earlier this year that it has been negotiating a
settlement with federal prosecutors and the Securities and Exchange
Commission. At CA's annual shareholders meeting last month, chairman Lewis
Ranieri said:
"We are working with the government to resolve all outstanding issues and
are reviewing compensation paid to certain officers in prior years. While I
cannot say exactly when this chapter in CA's history will be over, I can
assure you that the members of CA's board of directors and management team
are working with the government and doing everything we can to reach
closure. In the meantime, CA is moving ahead."
People familiar with the probe of CA had intimated earlier this year that
the depth of the obstruction of justice charges acknowledged by former
company officials and the company's reluctance to act against people
implicated in the misdeeds then weighed heavily in favor of a corporate
indictment.
But the company, in meetings with the government through the summer, appears
to have been persuasive in arguing that such a step would devastate the
company, its shareholders and employees. The company has taken steps such as
replacing top management, acknowledging wrongdoing, and cooperating in the
probe to make a case against a criminal indictment.
A deferred prosecution, on the other hand, would forestall, and eventually
dismiss, possible criminal charges against the company as the government
concludes its investigation and puts in place a independent monitor to
certify the changes.
"It's a better deal than it looked like CA would get" previously, said
Albert, adding that he'd expect a monitor to be in place for around two
years.
Another observer, speaking in general, said a deferred prosecution would be
a substantially positive development for CA. "A rational prosecutor isn't
looking to put people out of work and wreck a business," said Sean O'Shea,
former chief of the business and securities fraud division of the U.S.
attorney's office in Brooklyn, who operates a law firm in Manhattan.
"They're looking to correct wrongful behavior. If [a deferred prosecution is
reached], it looks as though they've struck a balance."
Copyright © 2004,
Newsday, Inc.
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