Original URL: http://www.theregister.co.uk/2007/04/16/ca_mulls_wang_lawsuit/

CA mulls suing co-founder Wang over accounting fraud

Biting the hand that nurtured it

By John Leyden

Posted in Financial News, 16th April 2007 16:14 GMT

CA may pursue its co-founder, Charles Wang, for damages resulting from a $2.2bn accounting scandal following the publication of internal report that alleges Wang "directed and participated" in a scheme to artificially inflate the software firm's stock price.

The report, by a committee of outside directors at CA, advises that Wang and senior executives around him cooked up CA's infamous "35-day month" ruse. The scheme involved backdating sales so as to fraudulently inflate revenues in closed quarters in order to meet Wall St expectations, boosting CA's "profits" and bonuses for senior executives in the process. The report advises CA to sue Wang and the senior execs around him for $500m in damages. It also calls for action in order to force Wang to hand back stock he received during as tenure between 1976 and 2002 in charge of the enterprise software giant, then known as Computer Associates.

Executives blamed for the scandal include Sanjay Kumar, Wang's longterm protege and successor as chief exec in 2002, who was recently jailed for 12 years after admitting his involvement in the scam. The study was prepared at the request of CA's current management as part of its defence against lawsuits brought by disgruntled investors who lost out as a result of the fraud.

"Mr. Wang was the direct cause of the 35-day month practice, both due to his actual conduct and the culture that he established, and that it existed for most, if not all, of his tenure as CEO," the report concluded, Newsday reports.

Wang denies the accusations of accounting fraud contained in the report. "This fallacious report does not serve the best interest of shareholders, customers and employees," he said. He suggested the report was based, at least partly, on unreliable information from Kumar. "I find hard to understand how the special litigation committee could believe the information they were given was credible, when their sources are those who perpetrated the crimes at issue and then lied about them to both internal company investigators and the government," he said.

Newsday quotes unnamed sources "familiar with the criminal investigation" as reporting there was never enough evidence to press charges against Wang.

Far from being the architect of one of the largest fraud in corporate America, Wang portrays himself as a victim. "As the founder of CA, I am devastated by what has happened to the company and feel personally wronged by Sanjay Kumar and the management team he installed," he said. ®