New York Times, April 14, 2007 article

Charles B. Wang, the founder and former chairman of Computer Associates, oversaw an accounting fraud lasting more than a decade at the software company, according to a scathing report released yesterday by the company’s board.

Mr. Wang, who owns the New York Islanders and is among the most politically influential people on Long Island, masterminded accounting gimmicks that led his company to report inflated sales and profits, the report states.

As a result of the fraud, the company has been forced to spend over $500 million on fines and internal investigations. It is still struggling to rebuild the trust of employees and shareholders, the report says.

In a statement, Mr. Wang said he sharply disagreed with the report’s conclusions and blamed Sanjay Kumar, his hand-picked successor, for the fraud.

Mr. Wang created a “culture of fear” at Computer Associates — now called CA — and deliberately put inexperienced executives in senior positions so that he would have more control, according to the report. He discouraged executives from meeting with each other and arbitrarily fired managers or employees who disagreed with him.

“Fraud pervaded the entire CA organization at every level, and was embedded in CA’s culture, as instilled by Mr. Wang, almost from the company’s inception,” the report said.

William E. McCracken and Renato Zambonini, directors of CA, wrote the 390-page report with the assistance of the law firm of Fried, Frank, Shriver, Harris & Jacobson. Mr. McCracken and Mr. Zambonini served as a “special litigation committee” to determine whether CA should try to recover money from Mr. Wang and other top executives and how it should deal with a shareholder lawsuit filed in 2005.

The report concludes that CA should try to force Mr. Wang to repay at least some of the compensation he received from the company. In 25 years running Computer Associates, Mr. Wang built a fortune estimated at about $1 billion, including a bonus in 1998 of $670 million that was issued shortly before its stock plunged 31 percent in a day.

The report focuses on CA’s practice of backdating contracts, although former employees have said that the company’s accounting gimmickry during the 1990s went far beyond backdating. The company used a variety of accounting ruses to inflate its reported sales and profits, the employees said.

Internal accounting controls were almost nonexistent at CA under Mr. Wang, according to the report. In 2000, at a time when CA had almost 20,000 employees and more than $6 billion in reported sales, its internal audit division consisted of five employees, including part-timers.

Since then, CA has replaced its entire upper management team, almost its entire board, and instituted stricter internal controls. Its reported sales have declined about 40 percent since 2000, to less than $4 billion. CA’s stock has fallen almost 70 percent from its highs in 2000. Yesterday, it closed at $26.35, down 1 cent.

In his statement, Mr. Wang said the report cannot be believed because it is based on information from former Computer Associates executives who have already admitted lying to the government.

“I am appalled by the report today,” Mr. Wang said. “This fictitious report does not serve the best interest of shareholders, customers and employees.”

Mr. Wang blamed Mr. Kumar, who replaced him as chief executive in 2000 and as chairman in 2002, and other executives for the company’s problems.

“I intend to vigorously defend my good name and fight any and all efforts to place the crimes of Kumar and his management team at my feet,” he said.

The report disputes that contention, claiming that from 1994 to 2000, Mr. Kumar undertook the fraud “often at the explicit direction of Mr. Wang (and at other times to avoid Mr. Wang’s anger).”

Dan Kaferle, a spokesman for CA, said the company believed the report was thorough, independent and complete. “We are pleased we are moving forward and putting these issues behind us,” he said.

The fraud at CA has been the subject of a five-year federal investigation that began in response to a New York Times article in April 2001 detailing the company’s accounting gimmicks. Several former CA executives, including Mr. Kumar, the former chief executive, have pleaded guilty to securities fraud and obstruction of justice charges stemming from the investigation. The company agreed in 2004 to pay $225 million to a shareholder restitution fund to settle the investigation.

But Mr. Wang has never been charged in the case. The statute of limitations for both securities fraud and obstruction of justice is five years, so prosecutors can no longer bring charges for any crimes before April 2002.

Mr. Wang was a hands-on executive intimately involved in the details of the company’s operations for more than two decades, according to the report. “Under Mr. Wang, CA was known as a ‘one-headed’ dragon, and no significant decisions were made without his participation and approval,” the report says.

But former employees have also said in interviews that Mr. Wang avoided the use of both e-mail and voice mail during his time running the software company.

CA Says Its Founder Aided Fraud