An investment group that holds shares of Computer Associates International Inc. is seeking more than $1 billion it claims was paid to executives under false pretenses.
Ranger Governance Ltd., which filed a lawsuit Tuesday in U.S. District Court in Brooklyn, N.Y., says the software maker in fiscal 2000 and 2001 paid executives cash, stock options and restricted stock that was based on erroneous financial reporting, the Wall Street Journal reported.
The lawsuit names 10 former and two current executives. They include former chief executives Charles Wang and Sanjay Kumar. If the lawsuit is successful, it is structured so that Computer Associates would receive damages and Ranger would get costs and attorney's fees.
Computer Associates has admitted to shifting revenue into different quarters on financial statements, although the company denies that sales were fabricated. The company has restated $2.2 billion in revenue that was booked incorrectly.
The Sarbanes-Oxley Act provides methods for recovering compensation from executives who presided during times of scandal, and a flurry of lawsuits has been filed seeking paybacks. New York Attorney General Eliot Spitzer, for example, is suing ousted New York Stock Exchange Chief Executive Dick Grasso, claiming that the exchange's board was misled about his $187.5 million pay package.
"I think we are going to see more suits coming online to claw back incentives based on flawed financials," said Paul Hodgson, who specializes in executive compensation at the Corporate Library in Portland, Maine.
Sam Wyly, who runs Dallas-based Ranger Governance Ltd., has been fighting with Computer Associates since 2000, when the company bought Wyly's Sterling Software Inc. Wyly has fought to replace some Computer Associates directors with his own candidates. One battle ended when he received a $10 million payment from the company, prompting widespread criticism.
Earlier this month, Ranger sent a letter to interim chief executive Kenneth Cron, asking him to bring the compensation matter to the board. Ranger "gave them more than a fair opportunity to take it on themselves," said Bill Brewer, a lawyer for the group. "They did nothing."
Computer Associates said in a statement that it hadn't seen the lawsuit but that the board "is continuing to review the matter of compensation given or due to the individuals subject to the government investigation."