CA's boxing match

His hands finally on 23 cartons of files, millionaire gadfly presses fight to nullify shareholder pact

BY MARK HARRINGTON
STAFF WRITER

December 2, 2005

Once, even federal investigators could not get their hands on the elusive 23 boxes of contracts that ultimately formed a cornerstone of the government's towering accounting fraud and obstruction-of-justice case against former CA executives.

Today, in a twist of fate, they are in the hands of longtime CA gadfly, Sam Wyly, one of the first to publicly accuse the company of corporate misdeeds in 2001.

After months of legal wrangling, lawyers for Wyly at the firm Bickel & Brewer gained access and have been poring over the once long-lost documents, which they say could have wide legal implications beyond the misdeeds detailed in the government's case.

"This is outrageous stuff, these 23 boxes," said William Brewer, the firm's co-founder and the attorney overseeing the case for Wyly. Though his aim is to pursue the bonuses given to top former CA officials, Brewer suggested legal options beyond the case that could include re-examining Wyly's 2000 sale of Sterling Software to CA, and a review of what CA clients may have known about the wrongdoing.

Wyly's lawyers have analyzed the timing of backdated contracts and compared it to the hundreds of millions in bonuses awarded to former executives including former chairman Charles Wang, former chief executive Sanjay Kumar and current executive vice president Russell Artzt. Only Kumar has been formally charged with securities fraud and obstruction of justice in the case, and he has denied wrongdoing.

"It's knockout proof there are billions of dollars of damage to this class," Brewer said. (CA issued 5.7 million shares and created a $225-million restitution fund to settle shareholder claims and receive a deferred prosecution agreement.)

In a statement yesterday, Islandia-based CA accused Wyly's lawyers of misusing "the media to rehash old charges" and called the suggestion that it had "improperly resisted" turning over documents simply ridiculous.

CA's attorneys had opposed turning over the boxes, arguing Wyly's court actions have led to unnecessary expense and that the federal government was best equipped to pursue so-called ill-gotten gains from wrongdoers.

A judge ordered CA to release the boxes in June and Brewer was finally granted access to the documents in July.

"What was funny was, they didn't want to give it to us in 23 boxes," Brewer said of outside lawyers for CA. "I said, 'No, no, no, no. I want to see the 23 boxes. I want to see the originals, copied in exactly that form.' I wanted there to be no mistaking the board and the lawyers had access to a sea of improperly timed contracts. This was no mere mistake."

CA called the claim "absolutely false" and said it "followed correct procedures" in making the documents available.

Wyly has been waging an expensive legal battle to invalidate part of the 2003 shareholder settlement that relieved board members and executives past and present of legal liability in the company's acknowledged accounting fraud. Brewer has been arguing that the discovery of the 23 boxes in September 2003 proves that board members, lawyers and executives understood far more of the obstruction and fraud when they finalized the shareholder settlement the following December. He said no mention was ever made to the judge overseeing the settlement or to shareholders' attorneys about the 23 boxes.

"The judge approved the settlement based on an incomplete record," Brewer said.

Still, an August filing by federal prosecutors disputes the boxes' significance, and Brewers' claims, calling the notion that it constitutes a fraud upon the court "simply preposterous."

Prosecutors, who have opposed Wyly's discovery requests pending completion of the probe, cite a CA press release in August 2003 that acknowledged prematurely booked revenue.

CA, in its statement, said information from the boxes was "fully disclosed" in the press release, more than two months before a December 2003 hearing clearing the settlement.

The first public mention of the discovery of the 23 boxes outside CA came in a Sept. 24, 2004, Wall Street Journal report. In that article, a lawyer investigating the accounting fraud for the CA board's audit committee, Robert Giuffra of the firm Sullivan & Cromwell, was quoted as saying, "Houston, we have a problem," to CA board member Walter Schuetze upon discovering the boxes. The revelation was an impetus for Wyly's suit.

The boxes contain contracts with dozens of big CA clients that provided evidence of some of the most egregious timing manipulations in the CA case, Brewer said. Among clients: Pitney Bowes, Intel Corp., American Express, Puerto Rico Telephone Co., Paine Webber Inc., R.J. Reynolds, and Citigroup-Salomon Smith Barney. None has been accused of any wrongdoing. The $115-million contract with Citigroup, according to Brewer's firm, was booked in the Sept. 30, 1999, quarter, but one document indicates it had been faxed Oct. 5.

CA declined to comment on customer contracts.

What is more, said Brewer, the company's initial resistance to his efforts to examine the 23 boxes and pursue his case have proved baffling at a time when CA is pursing a new image to distance itself from the past.

"There are people on this board who are still fighting the right of the [shareholders] to be reimbursed for their losses, and who would prefer to see the wrongdoers get away scot-free," Brewer said.

CA, in its statement, said the board has "consistently represented the interests of shareholders."

It pointed to the independent probe that uncovered the wrongdoing, the $225-million restitution fund and its efforts in "actively aiding the government in its attempts to recoup ill-gotten gains from those responsible."

But Brewer suggested that the company needs to go farther. "I believe you don't clean house until you get rid of [chairman Lewis] Ranieri, [board member Alfonse] D'Amato and anybody on the board from September of 2003 to the date of the restatement," he said.