Ernst & Young Sued For Its Computer Associates Audit

Dallas investor Sam Wyly has filed a lawsuit against Ernst & Young LLP, claiming that the firm's audit influenced him to sell his software company in exchange for stock in Computer Associates International Inc.

Ernst & Young was the auditor for both companies when Sterling Software Inc., which Wyly headed, was sold to Computer Associates for $4 billion in March 2000, the Wall Street Journal reported.

Wyly's suit said he depended on Ernst & Young's fiscal 1999 audit to make the decision to sell, but a month after the sale, Computer Associates' share price plummeted 12 percent in one day when the company delayed reporting its year-end earnings, the Journal reported. The stock dropped again later after Computer Associates' sales fell short of forecasts.

Ernst & Young "specifically supplied assurances as to the accuracy of CA's financials to Sterling Software and Sterling's Board and shareholders," the suit says.

In the end, a $2.2 billion accounting scandal engulfed Computer Associates, leading to the indictment of chief executive officer Sanjay Kumar and other executives.

Wyly wants $80 million or more from Ernst & Young, the suit says. Wyly also filed a lawsuit seeking five seats on Computer Associates' board in 2001, but he dropped the suit in 2002 after Computer Associates agreed to pay him $10 million and improve governance practices.

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