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Not satisfied that stiff fines, executive indictments and a deal with the government to settle fraud charges have cured what ails Computer Associates International Inc., a group of critical investors continues to pressure the company for restitution and answers.
Officials of major CA stockholder Ranger Governance Ltd., led by Texas billionaire Sam Wyly, want to reopen a class action settlement reached last year by CA and its top executives. In an interview with eWEEK last week, Ranger officials said the settlement, which resulted in a $100 million stock issue to shareholders and a release of liability for CA management, was based on fraudulent information.
According to officials, Ranger is drafting a formal letter to ask CA to join it in a motion to overturn the settlement and force former executives, including Charles Wang and Sanjay Kumar, to return hundreds of millions of dollars in personal profits gained from stock transactions.
“These former executives made money from the market, pumping that stock price up. Its the shareholders that got ripped off,” said Bill Brewer, partner at Bickel & Brewer and the lead attorney for Wyly and Ranger, in Dallas. “Those market losses are what the class action should have gotten back. Instead it got none of that.”
Brewer called the $100 million settlement “a pittance of what was ripped off. If these [former executives] had come forward and confessed the truth back then, nobody would have granted them the release.”
Click here to read about the indictment trail at CA.
Brewer said the Islandia, N.Y., software developer is being asked to join the legal action “as a way of determining whether we are really seeing a new day at CA.”
“Are these really people who feel like they were duped and are now compelled to help right the wrongs?” Brewer asked. “Do they go for some measure of justice for shareholders? Well take our answer as we see it from them.”
The effort to overturn the class action settlement is separate from a derivative suit that Wyly filed this summer in New York federal district court looking to get more than $1 billion in salaries and bonuses paid to current and former CA executives returned to the companys treasury. Ranger approached CAs interim CEO, Kenneth Cron, about joining that suit as well, but the CA hierarchy was “unfortunately hostile, argumentative and dismissive of our position,” Brewer said.
“Part of the reason they now give for that unfavorable position is because they had been lied to themselves,” Brewer said. “If thats true, they should join with us now in pursuing all ill-gotten gains.”
Next page: Looking to recover money.
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CA officials said they want to recover money from ousted executives as well but are depending on their alliance with federal prosecutors to accomplish that. “CA believes the government is in the best position to obtain disgorgement from wrongdoers,” said a CA spokesperson. “We will provide the government with active assistance, including accounting and legal support.”
While CA officials had not received Rangers request by press time, the spokesperson said the company is satisfied with the restitution delivered in that case, adding that the settlement would legally be difficult to reopen and revisit.
Wyly led a high-profile proxy battle to oust a majority of the CA board in 2001, claiming, among other things, that the board had negligently overlooked bookkeeping irregularities and a culture of dishonesty at the software maker. It was Wylys proxy fight that first brought suspicions about CAs accounting practices to public attention.
With CA now admitting to the transgressions it dismissed during the proxy battle, Brewer said Wyly and Ranger feel compelled to continue the effort to clean up CA.
“Wyly was at the front edge of this fight and was more right than he knew in 2001,” said Brewer.
A Securities and Exchange Commission investigation, concluded last month, resulted in a deferred prosecution deal between CA and the federal government. CA agreed to help with the prosecution of Kumar and sales executive Stephen Richards. CA also agreed to establish a $225 million restitution fund for current and former shareholders and to be monitored by an independent examiner for the next 18 months.
Going forward, Ranger is still seeking an overhaul of the companys management. “They need people on the board who understand this business,” said Brewer. “It is best if you have a CEO that runs the company and a [separate] chairman that runs the oversight.
One area where both Ranger and CA agree is in the need to move beyond the governance issues and get back to serving customers weary of the internal turmoil.
Having just two years of experience with CA, Nick Aldinger, LAN consultant and IT support technician for the Idaho State Controllers Office in Boise, said Cron can ill-afford any more missteps or customers could walk away.
“I think this is a wake up call and [Cron] has some big shoes to fill and hopefully he understands the mistakes [former CA executives] made and he doesnt make the same mistake twice,” Aldinger said. “That would be devastating and wed have to start looking at other options,” to replace CA software products.
“Sam [Wyly] would like nothing better to see this company growing,” said Brewer. “If you spend all this energy working with core products and with customers rather than spin and pumping up the numbers, this company has phenomenal prospects. Wyly is beside himself that opportunities are being lost.”
Editors Note: This story was updated to include further comments from officials and sources.
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