September 11, 2008

 

Dear Mr. Lutin:

 

Mr. McCracken has asked me to respond to your letters of September 8 and 9, 2008 requesting that CA seek court authorization to disclose to you the Final Report of the Independent Examiner (“IE”).   For the reasons set forth herein, CA declines to seek such court authorization.

 

As a preliminary matter, you correctly note in your letter of September 9 that the Order of Appointment of Independent Examiner, dated March 16, 2005, restrains the Company’s ability to disclose information contained in the IE’s reports, since the Court directed that:

 

The Independent Examiner, the USAO and the Commission shall not publicly disclose or disseminate any of the Independent Examiner’s quarterly reports and/or the Final Report, except in an official proceeding of the executive, legislative, or judicial branches of the United States Government, without prior approval by the Court, after briefing by all interested parties as to the need and propriety of disclosing such report(s), in whole or in part.  CA may publicly disclose information contained in the Independent Examiner’s reports to the degree that the reports contain material, nonpublic information that CA is obligated to disclose.  CA shall not publicly disclose information contained in the Independent Examiner’s reports for any other purpose without prior approval by the Court, after briefing by all interested parties as to the need and propriety of disclosing such report(s), in whole or in part.

 

Order of Appointment, ¶ 10.  To the extent the Company was permitted to release “material, nonpublic information that CA is obligated to disclose,” such disclosures have already been made in CA’s SEC filings and other publicly available documents.   Please note that the Final Report of the IE, which was provided to and reviewed by the Court, has not been filed publicly.   Indeed, a letter sent to the Court from CA’s counsel on May 23, 2007 noted that the report was sealed:

 

On behalf of CA, Inc., and as discussed during yesterday’s teleconference, CA respectfully requests that the Independent Examiner’s Final Report remain under seal, in accordance with paragraph 10 of the Court’s March 16, 2005 Order of Appointment of Independent Examiner. The United States Attorney’s Office for the Eastern District of New York and CA’s Independent Examiner support CA’s request.  The parties did not intend that the Independent Examiner’s Final Report (or any of the interim reports) be made available to the public.

 

Against that backdrop, it may be helpful to compare the mandate of the IE to that of the Special Litigation Committee (“SLC”) which, as you know, made its reports publicly available.   As described in one of its reports, the SLC:

 

was formed by the CA Board of Directors (the “CA Board”) on February 1, 2005 in response to the filing of a consolidated amended derivative complaint on January 7, 2005 (the “2005 Derivative Action”), which alleges various claims on behalf of CA against twenty-two (22) current and former CA directors, officers, and employees and its current and former independent auditors. The claims in the 2005 Derivative Action arise out of a massive accounting fraud perpetrated by the Company’s senior-most executives from as far back as the late 1980s through 2001, and their cover-up of that fraud, which lasted through mid-2004 . . . . In its authorizing resolution, the CA Board charged the SLC to investigate the claims made in the 2005 Derivative Action, and to determine and control the Company’s response to those claims.

 

Report of the SLC at 1-2.  Thus, the SLC conducted an extensive, in-depth historical investigation of past activities involving the Company, the results of which have been publicly disclosed.  Notably, the “recent news reports” referenced in your September 4, 2008 letter relate to the SLC reports, not those of the IE.

 

In contrast to the historical subject matter of the SLC investigation, the mandate of the IE was forward-looking; the Court directed the IE “to conduct a comprehensive review [and] make recommendations to the Board of Directors for review and implementation, after consultation with the Office, regarding best practices” in six areas identified in the Order.  See Deferred Prosecution Agreement, ¶ 19.   As a result, much of the information provided to the IE was necessarily of highly confidential and proprietary nature, concerning, among other things, ongoing business practices and operations of the Company.   The sensitive nature of this information is reflected in a protective order, stipulated to by the Department of Justice and the Securities and Exchange Commission, entered as an order by Judge Glasser, which provides in part as follows:

 

All information obtained by the Independent Examiner and his agents, counsel, accountants and other experts shall be used solely in furtherance of fulfilling the duties of the Independent Examiner as set forth in the March 16 Order and shall not be disclosed to or made accessible to any person, corporation, partnership, firm, agency, association or any other entity other than this Court and, to the extent deemed necessary by the Independent Examiner to fulfill his duties under the March 16 Order, representatives of (i) the United States Attorney’s Office, (ii) the Securities and Exchange Commission and/or (iii) CA.

 

Protective Order dated March 31, 2005, ¶ 1.  Unequivocally, all parties to the matter, including the Government and the Court, agreed that the sensitive information provided to the IE should be shielded against public disclosure. 

 

You have suggested that the purpose of the requested disclosure is to evaluate how the directors “conducted his or her responsibilities to establish corporate integrity and otherwise comply with the provisions of the Deferred Prosecution Agreement.”  Formal Demand of September 9, 2008 at 1.  In reviewing this matter, there is substantial information available on this point that has already been made publicly available.  During the term of the IE and the pendency of the DPA, CA provided detailed information about its progress in those matters, which information can be found in the Company’s annual proxy statements.  In addition, in moving to dismiss the Information filed against CA, the United States Attorney’s Office submitted a sworn declaration stating:

 

As is indicated in a report furnished to the Court on May 1, 2007 by the Court-appointed Independent Examiner, Lee Richards III, Esq., CA has complied with the terms of the [DPA].

 

Declaration of Assistant U.S. Attorney Eric Komitee, dated May 2007, ¶ 5.  On the strength of that Report and the USAO’s sworn declaration, by Order dated May 21, 2007, Judge Glasser dismissed the Information with prejudice.

 

While the Company reserves all rights with respect to the formal demand should you opt not to withdraw it, we note that, based on a preliminary review of the law of Delaware, CA’s state of incorporation, the IE’s Final Report does not constitute “the corporation’s books and records” subject to a Section 220 demand.  In addition, under Delaware law, a shareholder may not compel the company to disclose documents under Section 220 if such disclosure would be “adverse to the interests of the corporation.”  E.g., Compaq Computer Corp. v. Horton, 631 A.2d 1, 4 (Del. 1993).  The disclosure of CA’s highly confidential, proprietary information would pose significant commercial and competitive risks to the Company and would not be in its best interests, especially since it is a matter of public record that the IE, the USAO and the Court concluded that CA complied with all of its obligations under the DPA.

 

Based on the foregoing, it is clear that (1) CA cannot disclose the IE reports given the restrictions imposed by extant court order; (2) seeking amendment of such court order would be contrary to the best interests of the Company and its shareholders; and (3) such disclosure is unnecessary given the publicly available information concerning the Company’s compliance with the DPA.

 

Sincerely yours,

 

Amy Fliegelman Olli