CA investors eye restitution

Experts say guilty pleas of 2 will help the troubled company, but questions remain on who'll repay money

BY MARK HARRINGTON
Newsday Staff Writer

April 25, 2006

With the guilty pleas yesterday of two former CA officials, the software company formerly known as Computer Associates moves a long way toward putting a devastating accounting scandal in its past. But is it the end?

Longtime CA watchers said the latest developments were the most significant to date, but noted that much remains to be explored - and possibly litigated - in the $2.2-billion accounting scandal. Among the issues unresolved: how much restitution past executives will be forced to pay, and how the misdeeds went unchecked in the first place, CA watchers say.

Although CA has gone to extensive lengths to put the problems behind it - including changing its name and replacing its management - the trial of former chairman Sanjay Kumar and former executive vice president Stephen Richards had promised to be a long and potentially embarrassing chapter in company history.

"CA has got to be breathing an incredible sigh of relief," said Michael Dortch, a principal analyst with the Robert Frances Group, a Westport, Conn., consulting firm. "Anything that keeps CA at arm's length from legal proceedings is good for CA and good for its customers."

Both sides were expected to call dozens of witnesses in a complex trial that was to last through the summer and air claims about high-living executives and alleged misdeeds tied to client contracts. Everyone from current and past CA employees and officials, to Fortune 500 customers and possibly even board members were believed to be fair game on the witness stand for either side.

But with Kumar and Richards pleading to charges, the question now is where the government investigation goes next - if anywhere? "I can't imagine this thing begins and ends with Sanjay," said Dortch, whose company formerly consulted with CA, though it's not now a client.

But the one person who CA observers say is the only possible subject for continuing government probes has never been mentioned in government documents. Charles Wang, the CA founder who was chief executive throughout much of the period the company has acknowledged accounting improprieties, has not been charged with any wrongdoing. A CA spokesman declined to comment yesterday, and Wang wasn't available.

As for CA, in a statement yesterday it said: "CA today is led by a new management team, which has been leading a complete transformation of the company. We are a dramatically different organization than we were two years ago, when both Mr. Kumar and Mr. Richards left the company."

One person who expects a windfall - of potential new evidence as well as financial restitution - to result from yesterday's proceedings is longtime CA gadfly investor Sam Wyly. William Brewer, Wyly's lawyer from the law firm Bickel & Brewer, said he hopes Kumar will be made available to him in Wyly's quest to recover ill-gotten gains from past executives. CA, he said, won't be able to move forward until those matters are settled. Brewer has been fighting a legal battle to invalidate releases granted to past CA executives that prevent them from being sued to recover gains from the scandal.

"Anything that starts moving this forward to the ill-gotten gains getting recovered is what moves this company out of the past and into the future," Brewer said.

Gary Lutin, an investment banker who has led a shareholder forum on CA through its acknowledged misdeeds, said the guilty pleas free CA's board to clear the air as well.

"Kumar's coming clean is a real step forward for CA's investors, employees and anyone else concerned with their progress," Lutin said. "Among other things, it means the board no longer has any reason to be concerned about withholding information about their own past conduct of their responsibilities." He has pressed the board for minutes of past meetings, but CA has denied most of his requests.

Ross Albert, a former special counsel at the Securities and Exchange Commission and now an attorney at Morris, Manning & Martin in Atlanta, said he doesn't view the damage to CA as long-term. "The fraud at CA was nothing like the fraud at Enron," he said. "The underlying business ultimately has proven viable, because they're still around even after disclosing the fraud."