CA pursues co-founder on fraud

A special committee at CA Inc. Friday released a report blaming co-founder Charles Wang for accounting fraud at the company and recommending suing him for damages and the value of company stock he received.

That news came on the same day that Wang's successor, former CA CEO Sanjay Kumar, was ordered to pay more than US$1 billion in restitution to victims of securities fraud he committed while at the company. Kumar also faces 12 years in jail following his conviction for obstruction of justice and securities fraud.

"We conducted an independent, in depth and extensive factual investigation, which included 90 interviews and the review of millions of pages of documents. We believe that we have reached the right conclusions regarding settlements, claims and dismissals," said Bill McCracken of the Special Litigation Committee in a statement released by CA. A company spokesman said it would not make executives available for interviews at this time.

Wang released a statement blasting the report, according to the New York Times and other news outlets. Wang was not available for comment, but his statement reportedly blamed Kumar for the fraud.

The committee was formed to investigate what it called in its report "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." Central to the fraud was the practice of extending fiscal quarters artificially to recognize additional revenue prematurely, the so-called "35-Day month." CA had to restate $2.2 billion in revenues as a result.

The committee's report charges a "profound failure of leadership" and says it never outgrew a "start-up mentality... that was

incompatible with a publicly-traded, multi-billion dollar, international software enterprise." Furthermore, the report stated, "The 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 committee charged Wang with causing additional harm to CA by creating a "culture of fear" and surrounding himself with young executives whom he and Kumar could easily dominate.

As an example, the special committee cited Ira Zar, who was named CFO in June,1998, a 36-year-old at the time who had no professional experience outside of CA, and was not a certified public accountant. Zar "lacked the stature and experience to recognize, and prevent, the serious ramifications of the 35-Day Month practice" the report said.

Wang retired from CA in 2002.

(With additional reporting by Marc Ferranti in New York.)