EX-10.1:







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	DEFERRED PROSECUTION AGREEMENT
	CERTIFICATE OF CORPORATE RESOLUTION
	INFORMATION
	STIPULATION OF FACTS








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Exhibit 10.1


EOC:DBP/ERK

F.#2004r02093

CA.DPAgt.wpd



UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

- - - - - - - - - - - - - - - - x



	 	 	 
	UNITED STATES OF AMERICA
	 	 
	 
	 	 
	     - against -

	 	Cr. No. 04-837 (ILG)
	 
	 	 
	COMPUTER ASSOCIATES
INTERNATIONAL, INC.,
	 	 
	 
	 	 
	          Defendant.
	 	 
	 
	 	 
	- - - - - - - - - - - - - - - - x
	 	 










DEFERRED PROSECUTION AGREEMENT




          The defendant COMPUTER ASSOCIATES INTERNATIONAL, INC. (“CA”), by its
undersigned attorneys, pursuant to authority granted by its Board of Directors
in the form of a Board Resolution (a copy of which is attached hereto as
Exhibit A), and the United States Attorney’s Office for the Eastern District of
New York (the “Office”), hereby enter into this Deferred Prosecution Agreement
(the “Agreement”). Except as specifically provided below, and in accordance
with the provisions specified in paragraphs 22 and 24 below, this Agreement
shall be in effect for a period of 18 months.



Information




          1. The United States will file an Information in the United States
District Court for the Eastern District of New York charging CA with (a)
securities fraud in violation of Title 15, United States Code, Section 78j(b)
(Count 1), and (b) obstruction of justice in violation of Title 18, United
States Code, Section 1512(c)(2) (Count 2) (the “Information”).




 









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     Acknowledgment of Violation of Law and Acceptance of Responsibility



          2. CA accepts and acknowledges that, as set forth
in detail in the
Information (a copy of which is attached hereto as Exhibit B) and the
Stipulation of Facts (attached hereto as Exhibit C), both of which are
incorporated herein by reference, through the conduct of certain CA executives,
officers and employees during the relevant time period, CA:



               (a) filed and caused to be filed for certain of CA’s fiscal periods
materially false and misleading financial reports and other documents with the
Securities and Exchange Commission (the “SEC”), and made other materially false
and misleading public statements and omissions, in connection with the purchase
and sale of CA securities, relating to improper accounting practices employed
at CA involving the accelerated recognition of revenues associated with
multiple backdated software license agreements; and



               (b) obstructed an investigation being conducted by a grand jury sitting in
the Eastern District of New York, with the assistance of the Federal Bureau of
Investigation (the “FBI”), involving accounting and financial fraud at CA (the
“Grand Jury Investigation”), and an investigation being conducted by the SEC
involving accounting and financial fraud at CA (the “SEC Investigation”).



          3. CA accepts and acknowledges full responsibility for the conduct set
forth in the Information and in the Stipulation of Facts by entering into this
Agreement and by, among other things: (a) the remedial actions that CA has
taken to date (described in paragraph 4 below); (b) CA’s continuing commitment
of full cooperation with the Office, the FBI and the SEC (collectively, the
“Investigative Entities”); (c) CA’s agreement to fulfill all of the
undertakings CA has made in this Agreement, including to




 









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pay $225,000,000 in restitution to compensate former and current CA
shareholders for losses caused by the conduct set forth in the Information and
the Stipulation of Facts; (d) CA’s agreement to comply in the future with
Federal criminal laws, including Federal securities laws; and (e) CA’s issuance
of up to 5.7 million shares of CA Common Stock and payment of cash, at a total
cost to CA to date of approximately $163 million, to compensate present and
former CA shareholders in connection with the following cases brought in the
United States District Court for the Eastern District of New York, In re
Computer Associates Class Action Securities Litigation, 98 Civ. 4839 (TCP), In
re Computer Associates 2002 Class Action Securities Litigation, 02 Civ. 1226
(TCP), Ambler v. Computer Associates, 02 Civ. 6281 (TCP), and Federman v.
Artzt, et. al, 03 Civ. 4199 (TCP).




          4. CA represents that its Board of Directors and current senior management
have taken numerous remedial actions in response to the misconduct at CA that
has been discovered by the Grand Jury Investigation, the SEC Investigation and
an internal investigation conducted by CA (described in paragraph 5 below).
These remedial actions have included:



               (a) terminating CA officers and employees who were responsible for the
improper accounting, inaccurate financial reporting, and obstruction of justice
set forth in the Information and Stipulation of Facts;



               (b) terminating CA officers and employees who refused to cooperate with
CA’s internal investigation or who otherwise took steps to obstruct or impede
that investigation; and



 









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               (c) appointing new management, including, but not limited to, an Interim
Chief Executive Officer, a new Chief Operating and Chief Financial Officer, a
new Head of Worldwide Sales, and a new General Counsel.



Continuing Obligation of Cooperation




          5. In late-July 2003, CA, through its Audit
Committee, retained the
law firm of Sullivan & Cromwell LLP (“S&C”) to conduct an internal
investigation into CA’s accounting and financial practices. In December 2003,
CA’s internal investigation was expanded to include an inquiry into whether any
of CA’s officers and employees obstructed or failed to cooperate with the Grand
Jury Investigation and the SEC Investigation. CA’s internal investigation was
conducted with the assistance of a forensic accounting team from
PricewaterhouseCoopers (“PwC”) and involved more than 100 interviews and the
review of hundreds of thousands of pages of documents and e-mails. CA has
shared with the Investigative Entities the results of its internal
investigation, including documents that might otherwise have been withheld
under the attorney-client privilege and the work-product doctrine. CA
acknowledges and understands that its prior, ongoing and future cooperation are
important and material factors underlying the Office’s decision to enter into
this Agreement, and, therefore, CA agrees to continue to cooperate fully and
actively with the Investigative Entities and with any other agency of the
government designated by the Office (“Designated Agencies”) regarding any
matter about which CA has knowledge or information.



          6. During the term of this Agreement, CA agrees
that its continuing
cooperation shall include, but not be limited to, the following:



               (a) Completely and truthfully disclosing all information in its possession
to the Investigative Entities about which the Investigative Entities may



 









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inquire, including but not limited to all information about activities of
CA, present and former members of CA’s Board of Directors, and CA’s officers,
employees, and agents;




               (b) Assembling, organizing and providing all documents, records, and other
evidence in CA’s possession, custody, or control as reasonably may be requested
by any of the Investigative Entities or Designated Agencies;



               (c) Not asserting, in relation to the Investigative Entities, any claims
of attorney-client privilege or attorney work-product doctrine as to any
documents, records, information or testimony requested by the Investigative
Entities related to: (i) factual internal investigations concerning the
conduct set forth in the Information and the Stipulation of Facts; or (ii)
legal advice given contemporaneously with, and related to, such conduct. Such
materials are referred to hereinafter as the “Confidential Materials.” By
producing the Confidential Materials pursuant to this Agreement, CA does not
intend to waive the protection of the attorney-client privilege or the attorney
work-product protection, or any other privilege applicable, as to third
parties. The Investigative Entities will maintain the confidentiality of the
Confidential Materials pursuant to this Agreement and will not disclose them to
any third party, except to the extent that any Investigative Entity determines,
in its sole discretion, that disclosure is otherwise required by law or would
be in furtherance of the discharge of its duties and responsibilities.



               (d) Using its reasonable best efforts to make available its present and
former officers and employees to provide information and/or testimony as
requested by the Investigative Entities or any of the Designated Agencies,
including sworn testimony before a grand jury or in court proceedings, as well
as interviews with



 









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law enforcement authorities. Cooperation under this paragraph shall
include identification of witnesses who, to CA’s knowledge and information, may
have material information concerning the conduct set forth in the Information
and the Stipulation of Facts.




               (e) Providing testimony or information necessary to identify or establish
the original location, authenticity, or other basis for admission into evidence
of documents or physical evidence in any criminal or other proceeding as
requested by the Investigative Entities or any of the Designated Agencies,
including information and testimony concerning the conduct set forth in the
Information and Stipulation of Facts.



               (f) With respect to any information, testimony, documents, records or
physical evidence provided by CA to the Investigative Entities, any of the
Designated Agencies or a grand jury, other than Confidential Materials, CA
consents to any and all disclosures of such materials to such Designated
Agencies as the Office, in its sole discretion, deems appropriate. With
respect to any such materials that constitute “matters occurring before the
grand jury” within the meaning of Rule 6(e) of the Federal Rules of Criminal
Procedure, CA further consents to: (i) any order sought by the Office
permitting such disclosures; and (ii) the Office’s ex parte or in camera
application for such orders; and



               (g) Providing active assistance, including assistance by S&C and PwC, in
connection with any investigation, criminal prosecution, civil trial or other
legal proceeding brought by the Investigative Entities, including any
proceeding seeking to obtain disgorgement (or other similar relief) of
compensation (including compensation received pursuant to any CA stock option
or similar plan) from any present or former CA




 









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officer or employee. CA and its Board of Directors will fully support
efforts by the Investigative Entities to obtain disgorgement of compensation
from any present or former CA officer or employee who engaged in any improper
conduct while employed at CA. To the extent permitted by applicable law, CA
may be entitled to apply as a victim, on behalf of itself and/or its present or
former shareholders, for an award of some or all of the amount of any such
disgorged compensation obtained by the Investigative Agencies from such present
and former CA officers or employees.




          7. CA agrees that, following the expiration of
this Agreement as
specified in paragraph 24 below, CA will continue to fulfill the cooperation
obligations set forth in paragraph 6 above in connection with any
investigation, criminal prosecution or civil proceeding brought by any of the
Investigative Entities relating to or arising out of the conduct set forth in
the Information and the Stipulation of Facts. CA’s obligation to cooperate is
not intended to apply in the event that CA is a defendant in any such
proceeding.



Payment of Restitution to CA Shareholders




          8. In addition to CA’s payment of compensation to
current and
former CA shareholders in connection with the civil litigation described in
paragraph 3 above, CA agrees to pay an additional $225,000,000 for purposes of
restitution to current and former CA shareholders who suffered losses because
of the conduct of certain former CA officers and employees set forth in the
Information and Stipulation of Facts, according to the following schedule:
$75,000,000 within 30 days of the date of approval by the Court of this
Agreement to defer prosecution, as specified in paragraph 23 below; $75,000,000
within one year of the date of the Court’s approval of this Agreement to defer
prosecution; and $75,000,000 within 18 months of the Court’s approval of this




 









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Agreement to defer prosecution. The monies paid by CA in accordance with this
paragraph shall constitute the “Restitution Fund.” In the event that the
Restitution Plan (defined in paragraph 11 below) has not been approved by the
Court by the date of the first payment specified above to the Restitution Fund,
CA shall deposit such funds in an interest-bearing account at a financial
institution under terms approved by the Office.




          9. CA agrees that it will not, in connection with
the monies it pays
into the Restitution Fund, seek, obtain or accept any reimbursement or other
payments or credits from any insurer of CA or of any of its divisions or
subsidiaries.



          10. CA agrees to retain and to compensate an
individual or entity to
administer the distribution of the proceeds of the Restitution Fund to current
and former CA shareholders (the “Fund Administrator”). The Fund
Administrator’s compensation will not be paid out of the Restitution Fund. CA
will ensure, as a condition of retention, that the Fund Administrator agree to
abide by all the terms and conditions set forth in this Agreement. The
identity and terms of retention and compensation of the Fund Administrator must
be approved by the Office. Within 30 days of the date of execution of this
Agreement, CA will submit to the Office a proposal setting forth the identity
and terms of retention and compensation of the Fund Administrator. The Office
will approve or disapprove the proposed Fund Administrator within 15 days of
its receipt of a proposal. If the Office disapproves the proposed Fund
Administrator, CA will, within 30 days of receipt of notice of such
disapproval, submit a revised proposal, which the Office will approve or
disapprove within 15 days. The procedure set forth in this paragraph will
continue, as necessary, until such time as the Office approves a proposed Fund
Administrator.




 









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          11. Within six months of the retention of the
approved Fund
Administrator, the Fund Administrator will prepare and submit to the Office a
plan (the “Restitution Plan”) setting forth the procedures governing the
activities of the Fund Administrator, including but not limited to (a) the
procedures by which present and former CA shareholders injured by the conduct
set forth in the Information and Stipulation of Facts will be identified, and
(b) the procedures by which the financial losses of such CA shareholders will
be determined and restitution for such losses will be paid. In connection with
the preparation of the Restitution Plan, CA shall assist and cooperate with the
Fund Administrator. Because the restitution paid pursuant to this Agreement is
not ordered as part of a judgment of conviction, the provisions of 18 U.S.C. §§
3663 et seq. are inapplicable. The Restitution Plan must be approved by the
Office and the Court. The Office will approve or disapprove the Restitution
Plan within 30 days of its receipt. If the Office disapproves the proposed
plan, the Fund Administrator will, within 30 days of receipt of notice of such
disapproval, submit a revised plan, which the Office will approve or disapprove
within 30 days. This process will continue, as necessary, until a plan is
approved by the Office. Then, the Office and CA will jointly submit the
approved Restitution Plan to the Court for its approval. If the Court rejects
the approved Restitution Plan, the procedure set forth in this paragraph will
be repeated until such time as the Court approves a Restitution Plan.



Corporate Reforms




          12. CA agrees to add new independent directors to
its Board of
Directors and to undertake corporate governance reforms such that, by December
31, 2005, CA will have:



 









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               (a) in addition to former SEC Commissioner Laura Unger, added a minimum of
two new independent directors to CA’s Board of Directors, so that no less than
two-thirds of the members of CA’s Board of Directors will be independent
directors;



               (b) established a Compliance Committee of the Board of Directors (the
“Compliance Committee”), either as a separate committee or as part of a
reconstituted Corporate Governance and Compliance Committee or Audit and
Compliance Committee, to examine CA’s Internal Audit Department and the
compliance functions within CA’s Legal and Finance Departments, including
compliance with all of the terms and conditions of this Agreement;



               (c) established a new Disclosure Committee composed of the Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer, Chief Compliance
Officer, Chief Accounting Officer and General Counsel that meets and confers,
under the direction of a duly elected chairperson, prior to significant filings
with the SEC and the issuance of significant press releases; and



               (d) established enhanced corporate
governance procedures
providing for improved shareholder, community and governmental communications
with CA and its Board of Directors. Such measures will include: (i) inclusion
of a report of the Compliance Committee on CA’s website and in each annual
proxy statement mailed to CA shareholders during the term of this Agreement
describing CA’s efforts to comply with this Agreement and to implement the
recommendations of the Independent Examiner (described below) regarding
best-in-class corporate compliance and ethics programs; and (ii) adoption of
procedures to ensure that all inquiries raised by




 









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government entities, or by CA shareholders, customers, suppliers and employees,
regarding compliance and ethics matters receive prompt review, including
reporting of such matters, as appropriate, to the Compliance Committee and,
where appropriate, the full Board of Directors.




          13. By December 31, 2005, CA agrees to: (a)
establish new
comprehensive records management policies and procedures, as well as testing
programs to ensure compliance therewith, and (b) take steps to implement best
practices with respect to the recognition of software license revenue,
including enhanced quarter-end contract cut-off procedures, both subject to the
review of the Independent Examiner.



          14. CA agrees to establish a comprehensive
Compliance and Ethics
Program such that, by December 31, 2005, CA will:



               (a) establish a comprehensive ethics and compliance training program for
all CA employees designed to minimize the possibility of future violations of
the Federal securities and other laws by CA;

(b) appoint an independent,
senior-level Chief Compliance
Officer, after consultation with the Office, who will report directly to both
the Compliance Committee and the General Counsel; and



               (c) amend CA’s senior executive
compensation plans to add an
enhanced component to CA’s performance-based programs tied to the establishment
and maintenance of high ethical and compliance standards throughout CA.



          15. CA agrees that, by December 31, 2005, CA will
reorganize its
Finance Department, including, but not limited to, the appointment of a
Corporate Controller, a Chief Accounting Officer, and a Financial Controller
for each of CA’s




 









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primary business functions — Direct Sales, Indirect Sales, Development and
Services, or their successors. The Corporate Controller and Chief Accounting
Officer will report to the Chief Financial Officer but will also communicate
directly, as appropriate, with the Board of Directors and CA’s external
auditors. CA also agrees to begin the process of implementing, by December 31,
2005, an improved worldwide financial and enterprise resource planning (“ERP”)
information technology system to improve controls, eliminate errors caused by
existing manual processes, and enhance CA’s ability to audit its own systems.
CA’s implementation of the ERP system will be subject to the review of the
Independent Examiner (see below), and an assessment of such implementation of
the ERP system will be included in the Independent Examiner’s reports issued
under Paragraph 19(g) of this Agreement.




          16. By December 31, 2005, CA agrees to reorganize
and enhance its
Internal Audit Department, including hiring at least five additional internal
auditors. CA’s Internal Audit Department will report to both the Audit
Committee of CA’s Board of Directors and CA’s General Counsel.


          17. By December 31, 2005, CA agrees to establish a
written plan
designed to ensure the improvement and ongoing effectiveness of communications
with all governmental agencies engaged in inquiries or investigations relating
to CA, its subsidiaries or affiliates. The plan shall address, consider and
include:



               (a) Regular reporting by CA’s management and outside and
internal counsel to the Compliance Committee and, as appropriate, the full
Board of Directors regarding communications with government agencies engaged in
inquiries or



 









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investigations relating to CA, including, but not limited to, providing copies
of all written communications to and from such government agencies to the
Compliance Committee;




               (b) Complete and prompt access for government agencies to all CA staff and
management;



               (c) Meetings with the Board of Directors or committees thereof upon the
request of such governmental agencies engaged in inquiries and investigations
of CA; and



               (d) Training for CA personnel designed to improve communication and
cooperation with such governmental agencies engaged in inquiries and
investigations of CA.



          18. By December 31, 2005, CA agrees (a) to enhance
its current
telephone hotline to provide a means for employees anonymously to report any
potential violations of law or other misconduct, (b) to publicize within CA the
existence and purpose of the hotline, and (c) to ensure all employees that no
negative action will be taken against any employee who makes a report through
the hotline.



Appointment of Independent Examiner




          19. In accordance with the procedure specified in
paragraph 20 below,
CA agrees to retain and compensate an independent individual or entity to
examine CA’s compliance with this Agreement, to conduct a comprehensive review
of the areas specified in subparagraphs (a) to (f) below, and to make
recommendations to the Board of Directors for review and implementation, after
consultation with the Office, regarding best practices in these areas (the
“Independent Examiner”). The Independent Examiner will, in addition to
examining CA’s compliance with this Agreement:




 









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               (a) examine CA’s practices for the recognition of software
license revenue;


               (b) examine CA’s internal accounting
controls (the
Independent Examiner may, if appropriate, rely on CA’s external accountant’s
report on the effectiveness of CA’s internal accounting controls pursuant to
Section 404 of the Sarbanes-Oxley Act);



               (c) examine CA’s implementation of an
improved ERP
information technology system;



               (d) examine CA’s Internal Audit Department;



               (e) examine CA’s ethics and compliance policies;



               (f) examine CA’s records management policies and procedures;



               (g) within six months of appointment,
issue a written report to
the Office, the SEC and to CA’s Board of Directors making recommendations
regarding best practices for the areas specified in subparagraphs (a) to (f)
above; and



               (h) issue written quarterly reports to the Office, the SEC and to CA’s
Board of Directors on CA’s compliance with this Agreement during the term of
the Independent Examiner’s appointment.



          20. Within 30 days of the date of execution of this Agreement, CA will
submit to the Office and the SEC a proposal setting forth the identity,
qualifications, and proposed terms of retention of five candidates (either
individuals or entities) to act as the Independent Examiner. The Independent
Examiner’s compensation shall not be paid out of the Restitution Fund. The
Office and the SEC, within 30 days of such notice, will



 









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jointly either (a) approve three of the candidates, or (b) require CA to
propose additional candidates within 15 days. This process will continue, as
necessary, until the Office and the SEC have jointly approved three candidates.
Then, the Office, the SEC and CA will jointly submit the three approved
candidates to the Court. The Office and the SEC may, in their discretion, make
a recommendation to the Court regarding the three candidates. The Court shall
select the Independent Examiner from the three approved candidates and issue an
order appointing the Independent Examiner. If the Court rejects all three
approved candidates, the procedure set forth in this paragraph will be repeated
until such time as the Court approves an Independent Examiner. The procedures
set forth in this paragraph are subject to the approval of the Court. If the
Court does not approve the procedures set forth in this paragraph, the Office,
the SEC and CA will agree upon a different procedure for the appointment of the
Independent Examiner, and neither CA nor the Office will be relieved of any of
the other terms, conditions and obligations set forth in this Agreement.




          21. CA agrees that the Independent Examiner shall have reasonable access
to all of CA’s books and records and the ability to meet privately with CA
employees. Except in respect of communications with the Office or the SEC, the
Independent Examiner shall maintain the confidentiality of any non-public
business and financial information of CA. At the conclusion of the Independent
Examiner’s engagement, subject to the approval of the Office, the Independent
Examiner shall return to CA all documents reflecting or referring to non-public
business and financial information of CA.



 









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          22. The Independent Examiner shall have a term of engagement of 18 months
from the date of the Court’s order appointing the Independent Examiner. If, at
the conclusion of this 18-month period, less than all recommended reforms (to
the extent deemed significant by the Office) have been substantially
implemented for at least two successive quarters, or significant exceptions
have been noted in the course of the Independent Examiner’s most recent
quarterly review under paragraph 19(h), the Office and the SEC may, in their
discretion, extend the term of appointment of the Independent Examiner until
such time as all recommended reforms (to the extent deemed significant by the
Office) have been substantially implemented for at least two successive
quarters, or no significant exceptions have been noted in the course of the
Independent Examiner’s most recent quarterly review. Prior to extending the
term of this Agreement, the Office and the SEC will provide CA with an
opportunity to be heard with respect to CA’s implementation of reforms
recommended by the Independent Examiner, including as to the significance of
such reforms, and a reasonable opportunity to cure any exceptions noted by the
Independent Examiner. Because CA’s implementation of a new ERP system is
projected to extend over more than 18 months from the appointment of the
Independent Examiner, CA’s inability to implement fully such a system shall not
be a basis to extend the Independent Examiner’s term or this Agreement.



Deferral of Prosecution




          23. In consideration of CA’s remedial actions to date and its
commitment to: (a) accept and acknowledge responsibility for its conduct; (b)
continue its cooperation with the Office, the SEC and any of the Designated
Agencies; (c) make the payments specified in paragraphs 3 and 8 above; (d)
comply with Federal criminal laws, including Federal securities laws; and (e)
otherwise comply with all of the terms of



 









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this Agreement, the Office shall recommend to the Court that prosecution of CA
on the Information be deferred for a period of 18 months from the date of the
Court’s order appointing the Independent Examiner or until such time as the
Independent Examiner’s term of engagement is completed, whichever is later.
CA shall expressly waive all rights to a speedy trial pursuant to the Sixth
Amendment of the United States Constitution, Title 18, United States Code,
Section 3161, Federal Rule of Criminal Procedure 48(b), and any applicable
Local Rules of the United States District Court for the Eastern District of New
York for the period during which this Agreement is in effect.




          24. The Office agrees that, if CA is in compliance with all of its
obligations under this Agreement, the Office will, within 30 days of the
expiration of 18 months from the date of Court’s order approving the
appointment of the Independent Examiner or until such time as the Independent
Examiner’s term of engagement is completed, whichever is later, seek dismissal
with prejudice as to CA of the Information filed against CA pursuant to
paragraph 1 of this Agreement, and this Agreement shall expire, except as
provided in paragraph 7 above. Except in the event of a breach of this
Agreement, the Office will bring no additional charges against CA relating to
or arising out of the matters set forth in the Information or in the
Stipulation of Facts. CA and the Office understand that the Agreement to defer
prosecution of CA must be approved by the Court, in accordance with 18 U.S.C. §
3161(h)(2). Should the Court decline to approve the Agreement to defer
prosecution for any reason, both the Office and CA are released from any
obligation imposed upon them by this Agreement, and this Agreement shall be
null and void.



 









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          25. It is further understood that should the Office determine that CA has
deliberately given materially false, incomplete, or misleading information
pursuant to this Agreement, has committed any federal crimes subsequent to the
date of this Agreement, or has otherwise knowingly, intentionally and
materially violated any provision of this Agreement, CA thereafter shall be
subject to prosecution for any Federal criminal violation of which the Office
has knowledge. Any such prosecution may be premised on any information
provided by or on behalf of CA to the Office, the FBI, the SEC or any of the
Designated Agencies at any time. Moreover, CA agrees that any such prosecution
relating to the allegations in the Information that are not time-barred as of
the date of this Agreement may be commenced against CA in accordance with this
Agreement, notwithstanding the expiration of any applicable statute of
limitations between the signing of this Agreement and the expiration of this
Agreement under paragraph 24. By this Agreement, CA expressly intends to and
does waive any rights in this respect. Such waiver is knowing, voluntary and
in express reliance on the advice of CA’s counsel.



          26. It is further agreed that in the event that the Office determines that
CA has knowingly, intentionally and materially violated any provision of this
Agreement: (a) all statements made by or on behalf of CA to the Office, the
FBI, the SEC or any of the Designated Agencies, including but not limited to
the Stipulation of Facts, or any testimony given by CA before a grand jury, or
elsewhere, whether before or after the date of this Agreement, and any leads
derived from such statements or testimony, shall be admissible in evidence in
any and all criminal proceedings brought by the Office against CA; and (b) CA
shall not assert any claim under the United States Constitution,



 









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Rule 11(f) of the Federal Rules of Criminal Procedure, Rule 410 of the
Federal Rules of Evidence, or any other federal rule, that statements made by
or on behalf of CA before or after the date of this Agreement, or any leads
derived therefrom, should be suppressed.




          27. CA agrees that it shall not, through its attorneys, Board of
Directors, agents, officers or employees, make any public statement, in
litigation or otherwise, contradicting its acceptance of responsibility or the
allegations set forth in the Information or Stipulation of Facts. Any such
contradictory statement by CA, its present or future attorneys, Board of
Directors, agents, officers or employees shall constitute a breach of this
Agreement and CA thereafter shall be subject to prosecution as specified in
paragraphs 23 to 26. The decision as to whether any such contradictory
statement will be imputed to CA for the purpose of determining whether CA has
breached this Agreement shall be at the sole discretion of the Office. Upon
the Office’s notifying CA of any such contradictory statement, CA may avoid a
finding of a breach of this Agreement by publicly repudiating such statement
within 72 hours after receipt of notice by the Office. This Paragraph is not
intended to apply to any statement made by any current or former CA officer,
director or employee who has been charged with a crime or other wrongdoing by
the government or an agency thereof.



          28. CA agrees that the decision whether conduct and/or statements of any
individual will be imputed to CA for the purpose of determining whether CA has
knowingly, intentionally and materially violated any provision of this
Agreement shall be in the sole discretion of the Office, provided, however,
that the statements of any former officer, director or employee of CA shall not
be attributed to CA such purpose. Should the Office determine that CA has
committed a knowing, intentional and material breach




 









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of any provision of this Agreement, the Office shall provide written
notice to CA, addressed to its General Counsel, Kenneth V. Handal, Esq., One
Computer Associates Plaza, Islandia, New York 11749, and to CA’s counsel,
Robert J. Giuffra, Jr., Esq., Sullivan & Cromwell LLP, 125 Broad Street, New
York, New York 10004, or to any successor that CA may designate, of the alleged
breach and provide CA with a two-week period from the date of receipt of such
notice in which to make a presentation to the Office, or its designee, to
demonstrate that no breach has occurred, or, to the extent applicable, that the
breach was not knowing, intentional or material, or has been cured. Upon
request by CA, the Office may agree in writing to extend this two-week period,
including to provide CA with an opportunity to cure any breach of this
Agreement. The parties to this Agreement expressly understand and agree that
should CA fail to make a presentation to the Office, or its designee, within
the two-week period (or other period agreed to by the Office), the Office may
conclusively presume that CA is in knowing, intentional and material breach of
this Agreement. The parties further understand and agree that the exercise of
discretion by the Office or its designee under this paragraph is not subject to
review in any court or tribunal outside the United States Department of
Justice.




          29. Except to the extent permitted by the Office, CA agrees that, if it
sells or merges all or substantially all of its business operations as they
exist as of the date of this Agreement to or into a single purchaser or group
of affiliated purchasers during the term of this Agreement, CA shall include in
any contract for sale or merger a provision binding the purchaser/successor to
CA’s obligations described in this Agreement.




 









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21



          30. It is understood that this Agreement is binding on CA and the United
States Attorney’s Office, but specifically does not bind any other Federal
agencies, any state or local law enforcement agencies, any licensing
authorities, or any regulatory authorities. However, if requested by CA or its
attorneys, the Office will bring to the attention of any such agencies,
including but not limited to any licensing authorities, the Agreement, the
cooperation of CA and its compliance with its obligations under this Agreement,
and any corporate reforms specified in this Agreement. It is the intent of the
parties to this Agreement that the Agreement does not confer or provide any
benefits, privileges or rights to any individual or other entity other than the
parties hereto, and that nothing in the Agreement shall be construed as
acknowledging that the Agreement, including the Information or the Stipulation
of Facts and the evidence underlying the Agreement, the Information or the
Stipulation of Facts, shall be admissible in any proceeding other than a
proceeding brought by the Office. Moreover, CA may raise defenses and/or
assert affirmative claims in any civil proceedings brought by private parties
as long as doing so does not otherwise violate any term of this Agreement.



          31. CA and the Office agree that, upon filing of the Information in
accordance with paragraph 1 hereof, this Agreement (including its attachments)
shall be publicly filed in the United States District Court for the Eastern
District of New York.



          32. This Agreement sets forth all the terms of the Deferred Prosecution
Agreement between CA and the Office. No modifications or additions to this
Agreement




 









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22


shall be valid unless they are in writing and signed by the Office, CA’s
attorneys, and a duly authorized representative of CA.






		
	Dated: 	Brooklyn, New York

September 22, 2004





	 	 	 	 	 
	

	 	 	 	ROSLYNN R. MAUSKOPF
	

	 	 	 	United States Attorney
	

	 	 	 	Eastern District of New York
	 
	 	 	 	 
	

	 	By:	 	/s/ David B. Pitofsky
	

	 	 	 	
 
	

	 	 	 	David B. Pitofsky
	

	 	 	 	Principal Deputy Chief, Criminal Division
	 
	 
	 	 	 	/s/ Eric O. Corngold
	
	 	 	 	
 
	

	 	 	 	Eric O. Corngold
	
	 	 	 	Chief, Business & Securities Fraud Unit
	AGREED AND CONSENTED TO BY:
	 	 	 	 
	 
	/s/
Lewis S. Ranieri
	 	 	 	
	
 
	 	 	 	 
	Lewis S. Ranieri
	 	 	 	 
	Chairman of the Board
	 	 	 	 
	Computer Associates International, Inc.
	 	 	 	 
	Defendant
	 	 	 	 
	 
	/s/
Robert J. Giuffra, Jr.
	 	 	 	 
	
 
	 	 	 	 
	Robert J. Giuffra, Jr., Esq.
	 	 	 	 
	Sullivan & Cromwell LLP
	 	 	 	 
	Counsel to Defendant
	 	 	 	 
	 
	 	 	 	 
	 	 	SO ORDERED:
	 
	 	 	/s/   I. Leo Glasser
	 	 	
 
	 	 	THE HONORABLE I. LEO GLASSER
	 	 	UNITED STATES DISTRICT JUDGE
	 	 	EASTERN DISTRICT OF NEW YORK








 










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COMPUTER ASSOCIATES INTERNATIONAL, INC.

CERTIFICATE OF CORPORATE RESOLUTION



I, Kenneth D. Cron, do hereby certify that I am the Chief Executive Officer of
Computer Associates International, Inc. (“Computer Associates”), a Delaware
corporation, and that the following is a complete and accurate copy of
resolutions adopted by the Board of Directors of Computer Associates (the
“Board of Directors”) at a meeting held on September 21, 2004 at which a quorum
was present:



RESOLVED: That Lewis S. Ranieri, Chairman of the Board of Directors, be and
hereby is authorized to act on behalf of the Corporation, and in his sole
discretion:



(1) to negotiate, approve and execute the deferred prosecution agreement
between Computer Associates and the U.S. Department of Justice (“Department of
Justice”), in substantially the form attached to the minutes of this meeting,
and any amendments thereto, and to consent to the filing of an information and
stipulation of facts, in substantially the form attached to the minutes of this
meeting, and any amendments thereto, in the United States District Court for
the Eastern District of New York (the “DOJ Deferred Prosecution Agreement”);
and



(2) to negotiate, approve and make the offer of settlement of Computer
Associates, in substantially the form attached to the minutes of this meeting,
and any amendments thereto, to the United States Securities and Exchange
Commission (“Commission”) in connection with the investigation conducted by the
Commission (the “SEC Settlement”).



RESOLVED FURTHER: That the aforementioned Officer be and hereby is authorized
to undertake such action as he may deem necessary and advisable, including the
execution of such documentation as may be required by the Department of Justice
and the Commission, in order to carry out the foregoing, including the payment
of forfeitures and fees to carry into effect the intent and purpose of these
resolutions.



RESOLVED FURTHER: That Robert J. Giuffra, Jr., Esq. of Sullivan & Cromwell LLP,
be and hereby is retained as legal counsel to Computer Associates to represent
Computer Associates, and to make any representations or agreements in its name
and on its behalf that he deems necessary or appropriate, in any judicial or
other legal proceeding relating to the DOJ Deferred Prosecution Agreement and
SEC Settlement.



I further certify that the aforesaid
resolutions have not been amended or
revoked in any respect and remain in full force and effect.



IN WITNESS WHEREOF, I have executed this
Certificate as a sealed instrument
this 21st day of September, 2004.



	 	 	 	 	 
	 	 	 
	 	By:  	/s/
Kenneth D. Cron	 
	 	 	Kenneth D. Cron 	 
	 	 	Chief Executive Officer 	 
	 




 









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	 	 	 	 	 	 	 	Computer Associates International, Inc.
	State of New York
	 	 	)	 	 	 	 	 
	

	 	 	)	 	 	ss.:	 	 
	County of Suffolk

	 	 	)	 	 	 	 	 






On September 21, 2004, Kenneth D. Cron, a person known to me, personally
appeared before me and acknowledged executing the foregoing Certificate of
Corporate Resolution with full authority to do so on behalf of Computer
Associates International, Inc. as its Chief Executive Officer.



Carole Wilkinson                      

Notary Public



State of New York

Commission No. 4624866

My commission expires on 8/31/06




 










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EOC:DBP/ERK

F.#2004r02093

CA.INF.wpd



UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

- - - - - - - - - - - - - - - - x






	 	 	 
	UNITED STATES OF AMERICA

	 	I N F O R M A T I O N
	 
	 	 
	     - against -

	 	Cr. No. 04-837 (ILG)
	 
	 	 
	COMPUTER ASSOCIATES
INTERNATIONAL, INC.

	 	(T. 15, U.S.C., §§ 78j(b)
and 78ff; T. 18, U.S.C.,
§§ 1512(c)(2) and 3551 et seq.)
	 
	 	 
	          Defendant.
	 	 
	 
	 	 
	- - - - - - - - - - - - - - - - x
	 	 








THE UNITED STATES ATTORNEY CHARGES:


INTRODUCTION




          At all times relevant to this Information, unless
otherwise stated:





	I.	 	Background







	 	A.	 	The Defendant





          1. COMPUTER ASSOCIATES INTERNATIONAL, INC. (“CA”), was a Delaware
corporation with its headquarters and principal place of business located in
Islandia, New York. CA was one of the world’s largest providers of computer
software for use by businesses. CA’s reported revenue for its fiscal year
ending March 31, 1999 was $5.253 billion. CA’s reported revenue for its fiscal
year ending March 31, 2000 was $6.776 billion.



          2. CA was a publicly traded corporation, the common stock of which was
listed on the New York Stock Exchange. CA’s shareholders were located
throughout the United States, including in the Eastern District of New York.



          3. CA did not sell or transfer title to its software products to its
customers.




 









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Instead, CA licensed its software products pursuant to license agreements
by which CA’s customers agreed to pay a one-time license fee and annual usage
and maintenance fees.






	 	B.	 	Certain Relevant Accounting Principles





          4. As a public company, CA was required to comply with the rules and
regulations of the United States Securities and Exchange Commission (the
“SEC”). The SEC’s rules and regulations were designed to protect members of
the investing public by, among other things, ensuring that a company’s
financial information was accurately recorded and disclosed to the investing
public.



          5. Under the SEC’s rules and regulations, CA and its officers were
required to (a) make and keep books, records and accounts which, in reasonable
detail, fairly and accurately reflected the company’s business transactions,
including its revenue and expenses; (b) devise and maintain a system of
internal accounting controls sufficient to provide reasonable assurance that
the company’s transactions were recorded as necessary to permit preparation of
financial statements in conformity with Generally Accepted Accounting
Principles (“GAAP”); and (c) file with the SEC quarterly reports (on Form 10-Q)
and annual reports (on Form 10-K) which included financial statements that
accurately presented CA’s financial condition and the results of its business
operations in accordance with GAAP.



          6. Under GAAP, four conditions were required to be met in order for
revenue associated with a software license agreement to be recognized: (a)
persuasive evidence of an arrangement was required to have existed; (b)
delivery of the licensed products was required to have occurred; (c) the
license fee was required to have been fixed or determinable; and (d) the
collectibility of the license fee was required to have been probable.



          7. When a written contract was used to memorialize a license agreement,
the GAAP “persuasive evidence” criterion required that the contract be signed
by both vendor and



 









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customer. Accordingly, under GAAP, in order for CA properly to have
recognized revenue from a license agreement in a particular fiscal quarter, the
license agreement was required to have been signed by both CA and its customer
within that quarter.




          8. When a license agreement was finalized, for accounting purposes CA
allocated its revenue among the license fee and the usage and maintenance fees,
with 80 percent or more normally allocated to the license fee. CA then
calculated the present value of the license fee, which was normally collected
incrementally over the term of the agreement. The present value of the license
fee, which was referred to within CA as the “GAAP Value,” was then recognized
as revenue in the quarter in which the agreement was purportedly finalized and
signed.





	 	C.	 	Consensus Estimates





          9. CA regularly issued public predictions at the outset of each fiscal
quarter of the revenue and earnings it expected to earn during that quarter.
Based in part on these predictions, professional stock analysts estimated what
they believed would be CA’s total revenue during the period and predicted the
earnings per share of CA stock. The average of the estimates of the
professional analysts was commonly referred to as the “consensus estimate.”



          10. CA’s officers, executives and directors understood that CA’s failure
to meet or exceed the consensus estimate for a quarter would likely result in a
substantial decrease in the company’s stock price. For example, on July 3,
2000, CA issued a press release which reported that the company expected
“financial results for the first quarter [of fiscal year 2001] ending June 30,
2000 to be less than current Wall Street estimates.” In the press release, CA
cited as one of the factors contributing to its failure to meet the consensus
estimate “the fact that several large contracts that were expected to close in
the final days of the quarter have been




 









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delayed . . . .” On the date of the press release, which was issued after
the market closed, CA’s stock price closed at $51.12 per share. On the next
trading day,
1. July 5, 2000, CA’s stock price opened at $29.00 per share, representing a
percentage drop of slightly more than 43 percent.






	 	D.	 	The Scheme to Defraud: the “35-Day Month”





          11. Prior to and during CA’s fiscal year 2000,
which ended March 31, 2000, numerous CA officers and executives engaged in a
systemic, company-wide practice of falsely and fraudulently recording and
reporting within a fiscal quarter revenue associated with certain license
agreements even though those license agreements had not in fact been finalized
and signed during that quarter. This practice, which was sometimes referred to
within CA as the “35-day month” or the “three-day window,” violated GAAP and
resulted in CA’s filing of materially false financial statements.



          12. The practice was referred to as the “35-day month” because it involved
artificially extending months, primarily the last month of a fiscal quarter,
beyond the true end of the month. The practice did not, however, only result
in months that were artificially extended to 35 days. Instead, months were
often artificially extended even longer. Nonetheless, for the sake of
simplicity, the practice is referred to hereinafter as the “35-day month
practice.”



          13. The central goal of the 35-day month practice
was to permit CA to report that it met or exceeded its projected quarterly
revenue and earnings when, in truth, CA had not met its projected quarterly
revenue and earnings. As a result of the practice, CA reported falsely to
investors and regulators during numerous fiscal quarters, including each of the
four quarters of CA’s fiscal year 2000, that it had met or exceeded its
consensus estimates. In fact, in each of the four quarters of fiscal year
2000, CA improperly




 









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recognized and falsely reported hundreds of millions of dollars of revenue
associated with numerous license agreements that had been finalized after the
quarter close. In so doing, CA made misrepresentations and omissions of
material fact which were relied upon by members of the investing public.




          14. As part of the 35-day month practice, certain CA executives routinely
extended CA’s fiscal quarters, normally for three business days. This
practice, which was known as “keeping the books open,” was designed and
executed so that CA could falsely record and report revenue associated with
license agreements finalized after the end of fiscal quarters. The period
including three business days after the end of fiscal quarters was referred to
within CA as the “flash period.”



          15. As a further part of the 35-day month practice, certain CA
executives regularly met and conferred with each other in the days leading up
to and following the end of fiscal quarters, including during the flash period.
The purpose of these meetings was to determine whether CA had generated for
the quarter just ended, including during the flash period, sufficient revenue
to meet the consensus estimate. In each of the four quarters of CA’s fiscal
year 2000, the CA executives collectively determined that the total revenue
generated for the quarter by the end of the flash period was less than needed
to meet the consensus estimate. In each such instance, the CA executives
caused CA to keep its books open for additional days beyond even the flash
period to generate sufficient revenue to meet the consensus estimate.



          16. As a further part of the 35-day month practice, while CA’s books were
held open, certain CA executives instructed CA sales managers and salespeople
to negotiate and finalize additional license agreements, which were backdated
to disguise the fact that the agreements had been finalized after the end of
the fiscal quarter. CA then fraudulently recorded




 









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and reported in the earlier quarter revenue associated with the backdated
agreements.




          17. As a further part of the 35-day month practice,
certain CA officers and executives concealed the existence of the practice
from CA’s outside auditors. Among other things, CA executives engaged in a
practice of “cleaning up” copies of backdated license agreements before
providing copies of the agreements to CA’s outside auditors. This practice
included, but was not limited to, removing from license agreements facsimile
stamps and other notations which showed the true date on which the agreements
were finalized. This practice was designed and carried out to prevent CA’s
outside auditors, and by extension the investing public, from learning of CA’s
failure to meet or exceed the consensus estimates for the given quarter.





	 	(1)	 	First Quarter of Fiscal Year 2000





          18. The first quarter of CA’s fiscal year 2000
included the period from April 1, 1999 to June 30, 1999 (the “First Quarter”).
The consensus estimate for the First Quarter was that CA’s earnings would be 47
cents per share. When the First Quarter ended on June 30, 1999, CA had not
generated sufficient revenue to meet the consensus estimate.



          19. For the First Quarter, CA improperly recognized revenue associated
with approximately 22 license agreements having an aggregate GAAP Value of
approximately $240 million.


Of this total, approximately $120 million was associated with license
agreements signed by CA customers after June 30, 1999, while approximately $120
million was associated with license agreements countersigned by CA after June
30, 1999. The improperly recognized revenue represented approximately 20
percent of CA’s reported revenue for the First Quarter.





 









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          20. On or about July 20, 1999, CA filed with the SEC its quarterly report
on Form 10-Q and issued a related press release. In these public documents, CA
falsely reported its quarterly financial results, in that CA reported revenue
for the First Quarter that included revenue associated with license agreements
finalized after June 30, 1999. Through its false filings and statements, CA
reported earnings per share of 49 cents exclusive of non-recurring charges and
thereby created the false and fraudulent appearance that CA had exceeded the
consensus earnings estimate for the First Quarter by two cents per share.





	 	(2)	 	Second Quarter of Fiscal Year 2000





          21. The second quarter of CA’s fiscal year 2000
included the period from July 1, 1999 to September 30, 1999 (the “Second
Quarter”). The consensus estimate for the Second Quarter was that CA’s
earnings would be 59 cents per share. When the Second Quarter ended on
September 30, 1999, CA had not generated sufficient revenue to meet the
consensus estimate.



          22. For the Second Quarter, CA improperly recognized revenue associated
with approximately 58 license agreements having an aggregate GAAP Value of
approximately $560 million.


Of this total, approximately $470 million was associated with license
agreements signed by CA customers after October 30, 1999, while approximately
$90 million was associated with license agreements countersigned by CA after
October 30, 1999. The improperly recognized revenue represented approximately
35 percent of CA’s reported revenue for the Second Quarter.




          23. On or about October 19, 1999, CA filed with the SEC its quarterly
report on Form 10-Q and issued a related press release. In these public
documents, CA falsely reported




 









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its quarterly financial results, in that CA reported revenue for the
Second Quarter that included revenue associated with license agreements
finalized after September 30, 1999. Through its false filings and statements,
CA reported earnings per share of 60 cents exclusive of non-recurring charges
and thereby created the false and fraudulent appearance that CA had exceeded
the consensus earnings estimate for the Second Quarter by one cent per share.






	 	(1)	 	Third Quarter of Fiscal Year 2000





          24. The third quarter of CA’s fiscal year 2000
included the period from October 1, 1999 to December 31, 1999 (the “Third
Quarter”). The consensus estimate for the Third Quarter was that CA’s earnings
would be 90 cents per share.


When the Third Quarter ended on December 31, 1999, CA had not generated
sufficient revenue to meet the consensus estimate.




          25. For the Third Quarter CA improperly recognized revenue associated with
approximately 49 license agreements having an aggregate GAAP Value of
approximately $570 million.


Of this total, approximately $400 million was associated with license
agreements signed by CA customers after December 31, 1999, while approximately
$170 million was associated with license agreements countersigned by CA after
December 31, 1999. The improperly recognized revenue represented approximately
32 percent of CA’s reported revenue for the quarter.




     26. On or about January 26, 2000, CA filed with the SEC its quarterly
report on Form 10-Q and issued a related press release. In these public
documents, CA falsely reported its quarterly financial results, in that CA
reported revenue for the Third Quarter that included revenue associated with
license agreements finalized after December 31, 1999. Through its false
filings and statements, CA reported earnings per share of 91 cents exclusive of
non-recurring




 









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charges and thereby created the false and fraudulent appearance that CA
exceeded the consensus earnings estimate for the Third Quarter by one cent per
share.






	 	(4)	 	Fourth Quarter of Fiscal Year 2000





          27. The fourth quarter of CA’s fiscal year 2000
included the period from January 1, 2000 to March 31, 2000 (the “Fourth
Quarter”). The consensus estimate for the Fourth Quarter was that CA’s
earnings would be $1.13 per share. When the Fourth Quarter ended on March 31,
2000, CA had not generated sufficient revenue to meet the consensus estimate.



          28. For the Fourth Quarter CA improperly recognized revenue associated
with approximately 36 license agreements having an aggregate GAAP Value of
approximately $380 million.


Of this total, approximately $200 million was associated with license
agreements signed by CA customers after March 31, 2000, while approximately
$180 million was associated with license agreements countersigned by CA after
March 31, 2000. The improperly recognized revenue represented approximately 18
percent of CA’s reported revenue for the quarter.




          29. On or about May 15, 2000, CA filed with the SEC its annual report on
Form 10-K and issued a related press release. In these public documents, CA
falsely reported its quarterly financial results, in that CA reported revenue
for the Fourth Quarter that included revenue associated with license agreements
finalized after March 31, 2000. Through its false filings and statements, CA
reported earnings per share of $1.13 cents exclusive of non-recurring charges
and thereby created the false and fraudulent appearance that CA had met the
consensus earnings estimate for the Fourth Quarter.





	E.	 	Obstruction of Justice






 









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          30. In or about the beginning of 2002, the United States Attorney’s Office
for the Eastern District of New York (the “United States Attorney’s Office”),
the Federal Bureau of Investigation (the “FBI”) and the Northeast Regional
Office of the SEC began investigations into CA’s accounting practices,
including whether, during the late-1990s and thereafter, CA engaged in improper
accounting practices with the intent to overstate its fiscal quarterly revenue
to make it appear as though the company had met consensus estimates. Since
June 2002, a grand jury sitting in the Eastern District of New York had been
considering evidence about CA’s accounting practices. (These investigations
are referred to collectively as the “Government Investigations.”)



          31. In or about February 2002, CA retained a law firm (the “Company’s Law
Firm”) to represent it in connection with the Government Investigations.
Through the Company’s Law Firm, CA represented to the United States Attorney’s
Office, the FBI and the SEC that it was committed to cooperating fully with the
Government Investigations. This representation was also made publicly by CA in
press releases, SEC filings and other public statements. Additionally, in a
press release issued on February 20, 2002, CA denied that it had engaged in any
improper accounting practices, declaring: “The reporting of our financial
results has always been in accordance with applicable accounting principles.”



          32. Shortly after being retained in February 2002, the Company’s Law
Firm met with certain CA executives in order to inquire into their knowledge of
the practices that were the subject of the Government Investigations. During
these meetings, the CA executives did not disclose, falsely denied and
otherwise concealed the existence of the 35-day month practice. Moreover, the
CA executives concocted and presented to the Company’s Law Firm an assortment
of false justifications, the purpose of which was to support their false
denials of the 35-day month practice. The CA executives knew, and in fact
intended, that the Company’s Law




 









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Firm would
present these false justifications to the United States Attorney’s Office,
the SEC and the FBI so as to obstruct and impede the Government Investigations.




          33. For example, during a meeting with attorneys from the Company’s Law
Firm, CA’s Chief Executive Officer, Sanjay Kumar, and CA’s Chief Financial
Officer, Ira Zar, discussed the fact that former CA salespeople had accused CA
of engaging in the 35-day month practice. Kumar falsely denied that CA had
engaged in such a practice and suggested to the attorneys from the Company’s
Law Firm that because quarterly commissions paid to CA salespeople regularly
included commissions on license agreements not finalized until after the end of
the quarter, the salespeople might assume, incorrectly, that revenue associated
with those agreements was recognized by CA within the quarter. Kumar knew that
this explanation was false and intended that the Company’s Law Firm would
present this false explanation to the United States Attorney’s Office, the SEC
and the FBI as part of an effort to persuade those entities that the
accusations of the former salespeople were unfounded and that the 35-day month
practice never existed.



          34. During the course of the Government Investigations, the United States
Attorney’s Office, the FBI and the SEC regularly requested that CA produce
certain CA employees to be interviewed. As part of his duties as General
Counsel, Steven Woghin coordinated CA’s compliance with the government’s
requests. Sanjay Kumar frequently met and conferred with Woghin during the
course of the Government Investigations. Among other things, Kumar instructed
Woghin to meet with CA employees prior to their being interviewed by the
government or by the Company’s Law Firm to coach the employees on how to answer
questions without disclosing the existence of the 35-day month practice. On
several occasions,




 









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Kumar himself coached CA employees on how to answer questions without
disclosing the existence of the 35-day month practice.




          35. On September 6, 2002, CA executive Lloyd Silverstein was
interviewed by the United States Attorney’s Office, the FBI and the SEC. Prior
to that interview, in August and early-September 2002, Silverstein met and
conferred with several other CA executives. During these meetings, the
executives agreed that, acting in concert, they would deny and otherwise fail
to disclose the existence of the 35-day month practice, in part by giving
intentionally vague or misleading answers to questions about the existence of
the practice. Accordingly, during the September 6, 2002 interview, Silverstein
did not disclose and otherwise concealed the existence of the 35-day month
practice.



          36. In or about July 2003, the Audit Committee of
CA’s board of directors retained a second law firm (the “Audit Committee’s Law
Firm”) to conduct an internal investigation into CA’s accounting practices,
focusing on the 35-day month practice. As part of its internal investigation,
the Audit Committee’s Law Firm conducted interviews of CA executives and
employees.



          37. On or about October 6, 2003, January 14, 2004, January 22, 2004, and
April 6, 2004, Sanjay Kumar was interviewed by attorneys from the Audit
Committee’s Law Firm. During these interviews, Kumar did not disclose, but
instead falsely denied and otherwise concealed, the existence of the 35-day
month practice. Kumar knew that certain of the statements he made during the
interviews were false and that he otherwise concealed during the interviews
information which he knew to be material to the Government Investigations.
Kumar further knew, and in fact intended, that his false statements and
concealment of material information would have the effect of obstructing and
impeding the Government Investigations.




 









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          38. On October 23, 2003, CA’s Head of Worldwide Sales, Steven Richards,
testified under oath before the SEC in the Matter of: Computer Associates,
Inc., File No. NY 7008. The testimony was taken in Central Islip, New York.
During his testimony, Richards gave knowingly and willfully false testimony in
an attempt to conceal the existence of the 35-day month practice.



          39. On November 5, 2003, Sanjay Kumar was interviewed by FBI agents and
others at the United States Attorney’s Office in Brooklyn, New York. During
the interview, Kumar made materially false statements and representations in an
attempt to conceal the existence of the 35-day month practice.



COUNT ONE

(Securities Fraud)




          40. The allegations contained in paragraphs 1 through 39 are realleged and
incorporated as if fully set forth in this paragraph.



          41. On or about and between April 1, 1998 and September 30, 2000, both
dates being approximate and inclusive, within the Eastern District of New York
and elsewhere, the defendant COMPUTER ASSOCIATES INTERNATIONAL, INC. did
knowingly and willfully, directly and indirectly: (a) use and employ
manipulative and deceptive devices and contrivances in violation of Rule 10b-5
of the Rules and Regulations of the SEC (Title 17, Code of Federal Regulations,
Section 240.10b5), in that the defendant did knowing and willfully, directly
and indirectly,


(1) employ devices, schemes, and artifices to defraud; (2) make untrue
statements of material fact and omit to state material facts necessary in order
to make statements made, in light of the circumstances under which they were
made, not misleading; and



(3) engage in acts, practices, and courses of business which would and did
operate as a fraud and





 









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deceit upon members of the investing public, in connection with purchases and
sales of CA securities, and by use of interstate commerce and the mails.




          (Title 15, United States Code, Sections 78j(b) and 78ff; Title 18, United
States Code, Sections 3551 et seq.)



COUNT TWO

(Obstruction of Justice)




          42. The allegations contained in paragraphs 1 through 39 are realleged and
incorporated as if fully set forth in this paragraph.



          43. In or about and between February 2002 and April 6, 2004, both dates
being approximate and inclusive, within the Eastern District of New York and
elsewhere, the defendant COMPUTER ASSOCIATES INTERNATIONAL, INC. did knowingly,
intentionally and corruptly obstruct, influence and impede official
proceedings, to wit: the Government Investigations.



(Title 18, United States Code, Sections 1512(c)(2) and 3551 et seq.)




ROSLYNN R. MAUSKOPF

UNITED STATES ATTORNEY

EASTERN DISTRICT OF NEW YORK




 










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STIPULATION OF FACTS




          In any criminal proceeding brought by the United States Attorney’s Office
for the Eastern District of New York, the following stipulation by Computer
Associates International, Inc. (“CA”) shall be admissible against CA pursuant
to Rules 801(d)(2) and 804(b)(3) of the Federal Rules of Evidence:



Computer Associates





	1.	 	CA is a Delaware corporation with its headquarters and principal place of
business located in Islandia, New York. CA is one of the world’s leading
providers of computer software for use by businesses. CA’s reported
revenue for its fiscal year ending March 31, 1999 was $5.253 billion.
CA’s reported revenue for its fiscal year ending March 31, 2000 was $6.776
billion.
	 
	2.	 	CA is a publicly traded corporation, the common stock of which is listed
on the New York Stock Exchange. CA’s shareholders are located throughout
the United States, including in the Eastern District of New York.
	 
	3.	 	CA does not sell or transfer title to its products to its customers.
Instead, CA licenses its products pursuant to license agreements by which
CA’s customers agree to pay a one-time license fee and an annual usage and
maintenance fee.
	 
	4.	 	Since at least April 1, 1998, under Generally Accepted Accounting
Principles (“GAAP”), four conditions must be satisfied for revenue
associated with a software license agreement to be recognized: (a)
persuasive evidence of an arrangement exists; (b) delivery of the licensed
products has occurred; (c) the license fee is fixed or determinable; and
(d) the collectibility of the license fee is probable. When a written
contract is used to memorialize a license agreement, the GAAP “persuasive
evidence” criterion requires that the contract be signed by both software
vendor and customer. Accordingly, under GAAP, for CA properly to
recognize revenue from a license agreement in a particular fiscal quarter,
the license agreement must be signed by both CA and its customer within
that quarter.
	 
	5.	 	Until CA’s adoption of its New Business Model in October 2000, when a
software license agreement was finalized, for accounting purposes CA
allocated its revenue among the license fee and the usage and maintenance
fees, with 80 percent or more normally allocated to the license fee. CA
then calculated the present value of the license fee, which was normally
collected incrementally over the term of the agreement. The present value
of the license fee, which was referred to within CA as the “GAAP Value,”
was then recognized as revenue in the quarter in which the agreement was
purportedly finalized and signed.
	 
	6.	 	Prior to and during CA’s fiscal year 2000, professional stock analysts
estimated what they believed would be CA’s total revenue during a quarter
and predicted the earnings per share of CA stock. The average of the
estimates of the






 









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	 	 	professional analysts was commonly referred to as the “consensus
estimate.” CA’s failure to meet or exceed the consensus estimate for a
quarter would likely result in a substantial decrease in the company’s
stock price. For example, on July 3, 2000, CA issued a press release
which reported that the company expected “financial results for the first
quarter ending June 30, 2000 to be less than current Wall Street
estimates.” In the press release, CA cited as one of the factors
contributing to its failure to meet the consensus estimate “the fact that
several large contracts that were expected to close in the final days of
the quarter have been delayed . . . .” On the date of the press release,
which was issued after the market closed, CA’s stock price closed at
$51.12 per share. On the next trading day, July 5, 2000, CA’s stock
price opened at $29.00 per share, representing a percentage drop of
slightly more than 43 percent.





The Scheme to Defraud: the “35-Day Month”





	7.	 	Prior to and during CA’s fiscal year 2000, which ended March 31, 2000,
multiple former CA officers, executives and employees engaged in a
systemic, company-wide practice of falsely and fraudulently recording and
reporting within fiscal quarters revenues associated with certain license
agreements even though those license agreements had not in fact been
finalized and signed during the given quarter. This practice, which was
sometimes referred to within CA as the “35-day month” or the “three-day
window,” violated GAAP and resulted in CA’s filing of materially false
financial statements. The practice was referred to as the “35-day month”
because it involved artificially extending months, primarily the last
month of a fiscal quarter, for accounting purposes, beyond the true end of
the month. The practice did not, however, only result in months that were
artificially extended to 35 days. Instead, months were often artificially
extended even longer. Nonetheless, for the sake of simplicity, the
practice is referred to hereinafter as the “35-day month practice.”
	 
	8.	 	The central goal of the 35-day month practice was to permit CA to report
that it met or exceeded its projected quarterly revenue and earnings when,
in truth, CA had not met its projected quarterly revenue and earnings. As
a result of the practice, CA reported falsely to investors and regulators
during multiple fiscal quarters, including each of the four quarters of
CA’s fiscal year 2000, that it had met or exceeded its consensus
estimates. In fact, during each of the four quarters of fiscal year 2000,
CA improperly recognized and falsely reported hundreds of millions of
dollars of revenue associated with numerous license agreements that had
been finalized after the quarter close. In so doing, CA made
misrepresentations and omissions of material fact which were relied upon
by members of the investing public.
	 
	9.	 	As part of the 35-day month practice, certain former CA executives
routinely extended CA’s fiscal quarters, normally for three business days.
This practice, which was often referred to as “keeping the books open,”
was designed and executed so that CA could falsely record and report
revenue associated with backdated license agreements finalized after the
end of a fiscal quarter. The






 









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	 	 	period including three business days after the end of a fiscal quarter
was referred to within CA as the “flash period.”
	 
	10.	 	As a further part of the 35-day month practice, certain former CA
executives regularly met and conferred with each other in the days leading
up to and following the end of fiscal quarters, including during the flash
period. The purpose of these meetings was to determine whether CA had
generated, for the quarter just ended, including during the flash period,
sufficient revenues to meet the consensus estimate. In each of the four
quarters of CA’s fiscal year 2000, the former CA executives collectively
determined that the total revenue generated for the quarter was less than
needed to meet the consensus estimate. In each such instance, CA kept its
books open for additional days beyond even the flash period in order to
generate sufficient revenues to meet the consensus estimate.
	 
	11.	 	As a further part of the 35-day month practice, while CA’s books were
held open, certain former CA executives instructed CA sales managers and
salespeople to negotiate and finalize additional license agreements, which
were backdated to disguise the fact that the agreements had been finalized
after the end of the fiscal quarter. CA then fraudulently recorded and
reported in the earlier quarter revenue associated with the backdated
agreements.
	 
	12.	 	As a further part of the 35-day month practice, numerous former CA
officers and executives concealed the existence of the improper practice
from CA’s outside auditors. Among other things, CA executives engaged in
a practice of “cleaning up” copies of backdated license agreements before
providing copies of the agreements to CA’s outside auditors. This
practice included, but was not limited to, removing from license
agreements facsimile stamps and other notations which showed the true date
on which the agreements were finalized. This practice was designed and
carried out to prevent CA’s outside auditors, and by extension the
investing public, from learning of CA’s failure to meet or exceed the
consensus estimates for the given quarter.
	 
	13.	 	For the first quarter of CA’s fiscal year 2000, which ended June 30,
1999, CA improperly recognized revenue associated with approximately 22
license agreements with an aggregate GAAP Value of approximately $240
million. Of this total, approximately $120 million was associated with
license agreements signed by CA customers after June 30, 1999, while
approximately $120 million was associated with license agreements
countersigned by CA after June 30, 1999. The improperly recognized
revenue represented approximately 20 percent of CA’s reported revenue for
the quarter. On or about July 20, 1999, CA filed with the SEC its
quarterly report on Form 10-Q and issued a related press release. In
these public documents, CA falsely reported its quarterly financial
results, in that CA reported revenue for the first quarter of fiscal year
2000 that included revenue associated with license agreements finalized
after June 30, 1999. Through its false filings and statements, CA
reported earnings per share of 49 cents exclusive of non-recurring charges
and thereby created the false and fraudulent appearance






 









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	 	 	that CA had exceeded the consensus earnings estimate for the quarter by
two cents per share.
	 
	14.	 	For the second quarter of CA’s fiscal year 2000, which ended September
30, 1999, CA improperly recognized revenue associated with approximately
58 license agreements with an aggregate GAAP Value of approximately $560
million. Of this total, approximately $470 million was associated with
license agreements signed by CA customers after September 30, 1999, while
approximately $90 million was associated with license agreements
countersigned by CA after September 30, 1999. The improperly recognized
revenue represented approximately 35 percent of CA’s reported revenue for
the quarter. On or about October 19, 1999, CA filed with the SEC its
quarterly report on Form 10-Q and issued a related press release. In
these public documents, CA falsely reported its quarterly financial
results, in that CA reported revenue for the second quarter of fiscal year
2000 that included revenue associated with license agreements finalized
after September 30, 1999. Through its false filings and statements, CA
reported earnings per share of 60 cents exclusive of non-recurring charges
and thereby created the false and fraudulent appearance that CA had
exceeded the consensus earnings estimate for the quarter by one cent per
share.
	 
	15.	 	For the third quarter of CA’s fiscal year, which ended December 31, 1999,
CA improperly recognized revenue associated with approximately 49 license
agreements with an aggregate GAAP Value of approximately $570 million. Of
this total, approximately $400 million was associated with license
agreements signed by CA customers after December 31, 1999, while
approximately $170 million was associated with license agreements
countersigned by CA after December 31, 1999. The improperly recognized
revenue represented approximately 32 percent of CA’s reported revenue for
the quarter. On or about January 26, 2000, CA filed with the SEC its
quarterly report on Form 10-Q and issued a related press release. In
these public documents, CA falsely reported its quarterly financial
results, in that CA reported revenue for the third quarter of fiscal year
2000 that included revenue associated with license agreements finalized
after December 31, 1999. Through its false filings and statements, CA
reported earnings per share of 91 cents exclusive of non-recurring charges
and thereby created the false and fraudulent appearance that CA exceeded
the consensus earnings estimate for the quarter by one cent per share.
	 
	16.	 	For the fourth quarter of CA’s fiscal year 2000, which ended March 31,
2000, CA improperly recognized revenue associated with approximately 36
license agreements with an aggregate GAAP Value of approximately $380
million. Of this total, approximately $200 million was associated with
license agreements signed by CA customers after March 31, 2000, while
approximately $180 million was associated with license agreements
countersigned by CA after March 31, 2000. The improperly recognized
revenue represented approximately 18 percent of CA’s reported revenue for
the quarter. On or about May 15, 2000, CA filed with the SEC its annual
report on Form 10-K and issued a related press release. In these public
documents, CA falsely reported its quarterly financial results, in






 









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	 	 	that CA reported revenue for the fourth quarter of fiscal year 2000 that
included revenue associated with license agreements finalized after March
31, 2000. Through its false filings and statements, CA reported earnings
per share of $1.13 cents exclusive of non-recurring charges and thereby
created the false and fraudulent appearance that CA had met the consensus
earnings estimate for the quarter.





Obstruction of Justice





	17.	 	In or about the beginning of 2002, the United States Attorney’s Office
for the Eastern District of New York (the “United States Attorney’s
Office”), the Federal Bureau of Investigation (the “FBI”) and the
Northeast Regional Office of the Securities and Exchange Commission (the
“SEC”) began investigations into CA’s accounting practices, including
whether, during the late-1990s and thereafter, CA engaged in improper
accounting practices with the intent to overstate its fiscal quarterly
revenue to make it appear as though the company had met consensus
estimates. Since June 2002, a grand jury sitting in the Eastern District
of New York has been considering evidence about CA’s accounting practices.
(These investigations are referred to collectively as the “Government
Investigations.”)
	 
	18.	 	In or about February 2002, CA retained a law firm (the “Company’s Law
Firm”) to represent it in connection with the Government Investigations.
Through the Company’s Law Firm, CA represented to the United States
Attorney’s Office, the FBI and the SEC that it was committed to
cooperating fully with the Government Investigations. This representation
was also made publicly by CA in press releases, SEC filings and other
public statements. Additionally, in a press release issued on February
20, 2002, CA denied that it had engaged in any improper accounting
practices, declaring: “The reporting of our financial results has always
been in accordance with applicable accounting principles.”
	 
	19.	 	Shortly after being retained in February 2002, the Company’s Law Firm met
with certain former CA officers and executives in order to inquire into
their knowledge of the practices that were the subject of the Government
Investigations. During these meetings, the former officers and executives
did not disclose, falsely denied and otherwise concealed the existence of
the 35-day month practice. Moreover, the former officers and executives
concocted and presented to the Company’s Law Firm an assortment of false
justifications, the purpose of which was to support their false denials of
the 35-day month practice. The former officers and executives knew, and
in fact intended, that the Company’s Law Firm would and did present these
false justifications to the United States Attorney’s Office, the FBI and
the SEC, and further knew and believed that their false statements and
concealment of material information would have the effect of obstructing
and impeding the Government Investigations.
	 
	20.	 	On September 6, 2002, former CA executive Lloyd Silverstein was
interviewed by FBI agents and others at the United States Attorney’s
Office in Brooklyn, New York. During the interview, Silverstein made
materially false statements and






 









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	 	 	representations in an attempt to conceal the existence of the 35-day
month practice and his involvement in the practice.
	 
	21.	 	In late-July 2003, the Audit Committee of CA’s Board of Directors
retained a second law firm (the “Audit Committee’s Law Firm”) to conduct
an internal investigation into CA’s accounting practices, focusing on the
35-day month practice. As part of its internal investigation, the Audit
Committee’s Law Firm conducted interviews of, and met with, CA executives
and officers. During these interviews and meetings, certain former CA
officers and executives did not disclose, falsely denied and otherwise
concealed the existence of the 35-day month practice. Moreover, the
former officers and executives concocted and presented to the Audit
Committee’s Law Firm, and members of CA’s Audit Committee, an assortment
of false justifications, the purpose of which was to support their false
denials of the 35-day month practice. The former officers and executives
knew and believed that their false statements and concealment of material
information would have the effect of obstructing and impeding the
Government Investigations.
	 
	22.	 	Before being interviewed by the Company’s Law Firm, the Audit Committee’s
Law Firm and the U.S. Attorney’s Office, the FBI and the SEC, certain
former CA officers and executives met and conferred with one another.
During these meetings, the former officers and executives agreed that,
acting in concert, they would falsely deny and otherwise conceal the
existence of the 35-day month practice, in part by giving intentionally
vague or misleading answers to questions about the existence of the
practice.