Newsday, October 4, 2007 article

Pending Status

Forum activities relating to CA, Inc. are temporarily suspended pending release of a court-appointed Examiner's report on management compliance with a Deferred Prosecution Agreement.

Sam Wyly makes new accusations against CA board

BY MARK HARRINGTON | mark.harrington@newsday.com
5:46 PM EDT, October 4, 2007

Amid intensified legal arguments over who may or may not have authority to pursue financial claims against CA founder Charles Wang and others, Texas tycoon Sam Wyly in a recent court filing alleged a new litany of improprieties by CA board members.

Lawyers for Wyly in an Aug. 30 filing claimed "new evidence" not yet in its possession "will implicate CA's board in the fraud and cover-up." The filing mentions an Oct. 20 meeting at 21 Club in Manhattan in which a top CA executive, now serving jail time, was allegedly told to "misrepresent the truth" to federal investigators, by a board member. A CA spokesman, noting that a federal judge has denied Wyly's court motions, said, "We interpret that as saying the allegations do not have any merit." Wyly's lawyers have filed a notice of appeal, and the new allegations are expected to play a role in the appeal.

Notable among the claims is that former CA chairman Wang "indirectly paid" board member Alfonse D'Amato through a charitable organization "funded by Wang" while civil litigation over the $2.2 billion accounting scandal at CA was pending. Both were on CA's board at the time.

While the court filings don't name the organization, federal tax filings for the nonprofit, The Smile Train, show that D'Amato's firm, Park Strategies, was paid a total of $270,000 in fees for "strategic planning" and public relations between June 1999 and July 2003. Park Strategies, which did consulting work for CA after D'Amato left the U.S. Senate in 1999, ended the CA consulting relationship when D'Amato joined the CA board later in 1999.

The Web site for Smile Train, which provides surgery to repair the cleft palate and lips of children primarily in third-world countries, indicates that "all non-program expenses" of the organization are paid for by its board members. In most years, only a handful of outside firms have been paid by the organization.

A spokesman for Wang declined to provide a comment. D'Amato was traveling and his spokeswoman didn't return a phone call. The spokesman for CA, which previously had been a highly visible supporter of Smile Train, declined to comment on the transactions.

A long-time CA observer said the some of the claims were troubling.

"The new reports about transactions with Mr. D'Amato raise very serious questions about the entire board's conduct and certainly need to be investigated," said investment banker Gary Lutin, who has conducted a CA shareholders forum. "Even if everything can be explained away, you have to ask why these things weren't addressed in the Special Litigation Committee's report or by the court-appointed examiner."

Wang has never been criminally charged in the CA case, but a special committee of CA's board in April issued a scathing report alleging his involvement in the fraud and cover-up, and CA has reported its intentions to pursue claims against him. Wang has refuted the charges as "fallacious."

Whether CA will ever get to pursue those claims, and what it says could be up to $500 million in ill-gotten gains, could be decided soon by a federal judge.

For several years, Wyly has alleged a 2003 shareholder settlement that prevented past and current CA officials from being sued for the accounting fraud was itself arrived at through a fraud on the court that approved it. Wyly has sought to invalidate the portion of the settlement that released the executives from legal liability in the case. For years, CA has disputed Wyly's claims.

But after Wang and former chief financial officer Peter Schwartz declined to settle past claims with the board's special litigation committee, the company found it too needed to invalidate some of the settlement releases to pursue claims against the two. (A lawyer for Schwartz also has maintained his innocence.) Federal Judge Thomas Platt, who this summer denied Wyly's request to void the releases, in September also denied the special litigation committee's request to "amend or clarify" his order so they could pursue limited claims. Late last month, CA itself, through law firm Sullivan & Cromwell, asked the judge to certify its right to pursue the claims. That decision is pending.

Lawyers for Wyly say CA made missteps in failing to seek the legal clearances long ago.

"I think the strategic error CA made is sort of becoming obvious," said William Brewer, partner of the firm Bickel & Brewer, representing Wyly and his Ranger Governance. "We'll continue to highlight the fact that we asked them to do this years ago."

In addition to claims that Wang paid D'Amato, the filings by Wyly's Ranger Governance also allege, without elaborating, that D'Amato and board member Lewis Ranieri ( former chairman) "knew of and directed the cover-up of the fraud at CA." The Aug. 30 filing also makes reference to an Oct. 20, 2003 meeting between Ranieri and Stephen Richards, the former CA executive vice president who is serving an seven-year prison term for fraud and conspiracy charges. Wyly alleges that CA's special litigation committee "failed to accurately report" a conversation between the men, in which Ranieri is alleged to have "instructed Richards…to meet with the SEC and misrepresent the truth in order to continue the cover up of the fraud at the company."

CA spokesman Dan Kaferle noted that CA, two weeks before that meeting, had acknowledged accounting irregularities in a financial statement, suggesting Ranieri would have no reason to request that Richards lie.

In addition, he said, "The court has rejected the Wyly arguments. We interpret that as saying the allegations do not have any merit." The special litigation committee report makes reference to the meeting with Richards, saying Ranieri didn't recall the meeting but that his "script" for such encounters was that employees should "talk to the government and tell the truth."