BY MARK HARRINGTON
mark.harrington@newsday.com
July 27, 2007
Months after a committee of CA Inc.'s board
released a report that detailed the company's past culture of fraud but
advised against pursuing claims against board members, lawyers for
dissident shareholder Sam Wyly in a response 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 CA
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 that 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; it also 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 criticizes the board for failing to examine evidence of
wrongdoing in addition to the 35-day month - holding the close of fiscal
quarters open beyond proscribed limits. The criticisms include allegations
that CA executives made 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 advisers have
got a lot to answer for and we're anxious to have those questions
answered," said William Brewer, an attorney for 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 CA
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 $1.05million 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 says 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 [Sullivan & Cromwell] 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 reins 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 noted the law firm's work for CA's audit committee has been
largely praised by those involved in the case.
"Wyly and his attorneys' brief is not surprising because he wants to
extract more attorneys fees from CA and its shareholders," Giuffra said in
an interview. "Sullivan & Cromwell did an excellent job for CA, uncovering
wrongdoing, cleaning up the company and helping turn the company around
... "
