when accounting for performance requires leadership in word smithing.
By The Law Offices of Marc S. Henzel
BALA CYNWYD, Pa., March 8 /PRNewswire/ -- A class action lawsuit has been
filed in the United States District Court for the Eastern District of New York
on behalf of purchasers of Computer Associates International, Inc. (NYSE: CA)
securities between May 28, 1999, and February 25, 2002 (the "Class Period").
The Complaint alleges that defendants violated sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, by
issuing materially false and misleading statements to the market.
Specifically, beginning prior to May, 1999, the Company falsely indicated
that it had penetrated the distributed systems market when, in fact, it was
giving away its distributed system software free, or at nominal additional
cost, to customers who were also extending mainframe software licenses, and
attributed large portions of the resulting revenue to the non-mainframe
products.
Also, beginning prior to May, 1999, and ending in October, 2000, when the
Company extended a license during its term, it recognized revenue for the
entire new license. Until June, 2000, when CA began using new auditors, CA
did not "back out" the revenue from the unexpired portion of the old license,
double-counting this revenue. After June, 2000, CA began backing out this
figure in an obscure line item -- but never disclosed that this caused revenue
to be overstated by more than one hundred million dollars each quarter prior
June, 2000.
Defendants in order to hide a severe drop in revenue as measured by
Generally Accepted Accounting Principles ("GAAP"), announced a "new business
model," which they represented involved offering more flexible licensing terms
to customers.
In fact, the "new business model" was a cover to institute new, non-GAAP
compliant accounting (which the Company called "pro forma, pro rata"), and to
obscure the fact that the switch from long-term licenses to flexible
subscriptions was not a pro-active move, but a symptom of the obsolescence of
CA's main product line. While the stated goal of the "new business model" was
to provide customers more flexible terms, the real purpose was to cover up the
fact that CA could no longer get many of their mainframe customers to purchase
the long-term licenses of mainframe software which have been the Company's
mainstay.
After the announcement of the "new business model" in October, 2000, the
Company issued press releases heralding moderate growth, though the GAAP
figures showed a revenue decrease of nearly sixty percent.
The "pro forma, pro rata" method counted revenue from old license sales in
current and future periods, using old revenues to buttress the current,
deteriorating sales. Defendants have attempted to have their cake and eat it,
too: in a strong economy, CA recognized all the revenue from its sales
immediately, even double-counting some revenue, showing impressive numbers.
Now, in a sagging economy, they have obscured the real loss of sales by
changing to a method of accounting so back-loaded that it does not conform to
GAAP. The "pro forma, pro rata" method also did not make the distinctions
between product and service revenue required by GAAP, obscuring the
distinction and further hiding the deterioration in sales.
CA has continued to report its GAAP figures, as it is required by the
Securities and Exchange Commission ("SEC") to do. Incredibly, defendants have
falsely stated that the GAAP figures are not reflective of the Company's
financial position, and that the "pro forma, pro rata" figures do accurately
reflect the Company's financial position.
The Company's true condition, however, is shown by the conduct of
defendants during the Class Period. After announcing the "new business model"
but before reporting under it for the first time, and contrary to the
Company's representations that the rosy picture created by the "pro forma, pro
rata" figures was an accurate portrayal of the Company's position, the
defendants engineered a clandestine, firm-wide layoff, hiding the terminations
as individual performance-based firings. They fired possibly as many as a
thousand employees with no severance package, and continue to deny that the
firings were a layoff, even though executives involved in the layoff have
confirmed it to the New York Times (as reported on March 20, 2001). More
recently, the Company was forced to withdraw a planned debt offering after
Moody's questioned the quality of the Company's credit. As a result, CA
admits, it was forced to draw down $600 million on one credit line to pay
another.
The desperate cost-cutting by secret layoff, use of its new unrecognized
accounting just when its revenue has dropped sharply, and the use of credit
lines to service existing debt, demonstrate that defendants are keenly aware
of the precarious financial condition of the Company, and have deliberately
mislead the investing public.
The misleading picture the Company has presented has not gone
unquestioned. On February 22, 2002, the Company confirmed that it was aware
that both the Securities Exchange Commission and the Federal Bureau of
Investigation were investigating the Company's accounting for civil, and in
the case of the FBI, criminal violations. News of the criminal and civil
probes, which began to surface on February 20, caused investors to flee the
stock, which fell from a February 19 closing price of $25.31 to a February 22
close of $15.99, a drop of 36.8%.
Plaintiff seeks to recover damages on behalf of all those who purchased or
otherwise acquired CA securities during the Class Period. If you purchased or
otherwise acquired CA securities during the Class Period, and either lost
money on the transaction or still hold the securities, you may wish to join in
the action to serve as lead plaintiff.
Plaintiff is represented by The Law Offices of Marc S. Henzel. If you
bought the securities during the class period, you may, no later than
April 26, 2002, request that the Court appoint you as lead plaintiff. A lead
plaintiff is a representative party that acts on behalf of other class members
in directing the litigation. In order to be appointed lead plaintiff, the
Court must determine that the class member's claim is typical of the claims of
other class members, and that the class member will adequately represent the
class. Under certain circumstances, one or more class members may together
serve as "lead plaintiff." Your ability to share in any recovery is not,
however, affected by the decision whether or not to serve as a lead plaintiff.
If you have any questions concerning this case or your rights or interests
with respect to these matters, please contact: Marc S. Henzel, Esq. of The Law
Offices of Marc S. Henzel, 273 Montgomery Ave., Suite 202 Bala Cynwyd, PA
19004-2808, by telephone at (888) 643-6735 or (610) 660-8000, by facsimile at
(610) 660-8080, by e-mail at Mhenzel182@aol.com or visit the firm's website at
members.aol.com.
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SOURCE The Law Offices of Marc S. Henzel
-0- 03/08/2002
/CONTACT: Marc S. Henzel, Esq. of The Law Offices of Marc S. Henzel,
+1-888-643-6735 or +1-610-660-8000, or fax, +1-610-660-8080, or e-mail,
Mhenzel182@aol.com/
/Web site: members.aol.com /
(CA)
CO: The Law Offices of Marc S. Henzel; Computer Associates International,
Inc. |
