Document:

EX-10.1:

TABLE OF CONTENTS

									
	DEFERRED PROSECUTION AGREEMENT
	CERTIFICATE OF CORPORATE RESOLUTION
	INFORMATION
	STIPULATION OF FACTS

Table of Contents

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
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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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 6

	 	 	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.EX-10.2:

TABLE OF CONTENTS

									
	FINAL CONSENT JUDGMENT
	COMPLAINT

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Exhibit 10.2

	 	 	 
	UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK
	 	 

	
 	 	 

	 

SECURITIES AND EXCHANGE COMMISSION,
 

Plaintiff, 
 
 
 

v. 
 
 

COMPUTER
ASSOCIATES 

INTERNATIONAL, INC., 

 

Defendant. 

	 	:

:

:

:
      04 Civ.    (ILG)
:

:

:

:

:

:

:

:

:

:

:

	
 	 	 

FINAL CONSENT JUDGMENT OF PERMANENT INJUNCTION

AND OTHER RELIEF AS TO DEFENDANT

COMPUTER ASSOCIATES INTERNATIONAL, INC.

     Plaintiff Securities and Exchange Commission (“Commission”) having filed a
Complaint (“Complaint”) on September 22, 2004 charging Defendant Computer
Associates International, Inc. (“CA” or the “Defendant”) with violating Section
17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. § 77q(a)]
Sections 10(b), 13(a), and 13(b)(2) of the Securities Exchange Act of 1934
(“Exchange Act”) [15 U.S.C. §§ 78j(b), 78m(a), 78m(b)(2) and 78n(a)] and
Exchange Act Rules 10b-5, 12b-20, 13a-1, and 13a-13 [17 C.F.R. §§ 240.10b-5,
240.12b-20, 240.13a-1, and 240.13a-13] and CA having entered a general
appearance, executed the Consent of Defendant CA (“Consent”) annexed hereto and
incorporated herein, having, on September 22, 2004, entered into the Deferred
Prosecution Agreement (the “DPA, “ filed under Criminal Docket Number CR 04-837
(ILG) (E.D.N.Y.)) with the United States Attorney’s Office for the Eastern
District of New York (“USAO”), which requires CA to pay restitution to CA

 

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shareholders who suffered losses because of the conduct set forth in the
Complaint in the amount of Two Hundred Twenty Five Million Dollars
($225,000,000), having waived service of a Summons and Complaint and the entry
of findings of fact and conclusions of law pursuant to Rule 52 of the Federal
Rules of Civil Procedure, having admitted to the jurisdiction of this Court
over it and over the subject matter of this action and, without admitting or
denying the allegations contained in the Complaint, except as to jurisdiction,
which are admitted, and having consented to the entry of this Final Consent
Judgment Of Permanent Injunction And Other Relief As To Defendant Computer
Associates International, Inc. (“Final Judgment”), and waived any right to
appeal from this Final Judgment, without further notice:

I.

     IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that defendant CA and
Defendant’s agents, servants, employees, attorneys, and all persons in active
concert or participation with them who receive actual notice of this Final
Judgment by personal service or otherwise are permanently enjoined and
restrained from, directly or indirectly, in the offer or sale of any security,
by the use of any means or instrument of transportation or communication in
interstate commerce or of the mails:

	 	(A)	 	employing any device, scheme, or artifice to defraud;
	 
	 	(B)	 	obtaining money or property by means of any untrue statement
of material fact or any omission to state a material fact necessary
in order to make the statements made, in light of the circumstances
under which they were made, not misleading; or

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	 	(C)	 	engaging in any transaction, practice, or course of business
which operates or would operate as a fraud or deceit upon a
purchaser,

in violation of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].

II.

     IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that defendant CA and
Defendant’s agents, servants, employees, attorneys, and all persons in active
concert or participation with them who receive actual notice of this Final
Judgment by personal service or otherwise are permanently enjoined and
restrained from, directly or indirectly, in connection with the purchase or
sale of any security, by the use of any means or instrumentality of interstate
commerce, or of the mails, or of any facility of any national securities
exchange:

	 	(A)	 	employing any device, scheme, or artifice to defraud;
	 
	 	(B)	 	making any untrue statement of a material fact or omitting to
state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were made,
not misleading; or
	 
	 	(C)	 	engaging in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any person,

in violation of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule
10b-5 thereunder [17 C.F.R. § 240.10b-5].

III.

     IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that defendant CA and
Defendant’s agents, servants, employees, attorneys, and all persons in active
concert or

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participation with them who receive actual notice of this Final Judgment by
personal service or otherwise are permanently restrained and enjoined from,
directly or indirectly:

	 	(A)	 	failing to file with the Commission any report or document
required to be filed with the Commission pursuant to Section 13(a)
of the Exchange Act [15 U.S.C. § 78m(a)] and the rules and
regulations promulgated thereunder; or
	 
	 	(B)	 	filing with the Commission a report required to be filed with
the Commission pursuant to Section 13(a) of the Exchange Act [15
U.S.C. §78m(a)] and the rules and regulations promulgated
thereunder, that (1) contains an untrue statement of material fact;
(2) fails to include, in addition to the information required to be
stated in such report, such further material information as may be
necessary to make the required statements, in light of the
circumstances under which they are made, not misleading, as
prescribed by Commission Rule 12b-20 [17 C.F.R. § 240.12b-20]; or
(3) otherwise fails to disclose any information required to be
disclosed therein,

in violation of Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] or Rules
12b-20, 13a-1 or 13a-13 thereunder [17 C.F.R. § 240.12b-20, 240.13a-1 or
240.13a-13].

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IV.

     IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that defendant CA and
Defendant’s agents, servants, employees, attorneys, and all persons in active
concert or participation with them who receive actual notice of this Final
Judgment by personal service or otherwise are permanently restrained and
enjoined from, directly or indirectly:

	 	(A)	 	failing to make or keep books, records and accounts which, in
reasonable detail, accurately and fairly reflect the transactions
and dispositions of its assets; or
	 
	 	(B)	 	failing to devise and maintain a system of internal
accounting controls sufficient to provide reasonable assurances
that:

(1) transactions are executed in accordance with management’s
general or specific authorization;

(2) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted
accounting principles, or any other criteria applicable to such
statements, and to maintain accountability for assets;

(3) access to assets is permitted only in accordance with
management’s general or specific authorization; and

(4) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences,

in violation of Section 13(b)(2) of the Exchange Act [15 U.S.C. § 78m(b)(2)].

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V.

     IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant and its
successors will cooperate fully in connection with the ongoing investigations
of former CA employees and others by the staff of the Commission (“Commission
staff”), USAO and the Federal Bureau of Investigation (“FBI,” collectively “the
Investigative Entities”) concerning the conduct alleged in the Complaint.

	(A)	 	During the term of the DPA, CA’s continuing cooperation will include:

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

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

(3) Not asserting, in relation to the Investigative Entities, any
claims of attorney-client privilege or attorney work-product
protection as to any documents, records, information or testimony
requested by the Investigative Entities related to: (1) factual
internal investigations concerning the allegations in the
Complaint; or (2) legal advice given contemporaneously with, and
related to, the conduct alleged in the Complaint. Such materials
are referred to hereinafter as the “Confidential Materials.” By
producing the Confidential Materials to the

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Investigative Entities pursuant to this Final Judgment, CA does not
waive the protection of the attorney-client privilege or the
attorney work-product doctrine, or any other privilege applicable
as to third parties. The Investigative Entities will maintain the
confidentiality of the Confidential Materials pursuant to this
Final Judgment 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 its discharge of its duties and
responsibilities.

(4) 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, including
sworn testimony before a grand jury or in court proceedings, as
well as interviews with 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 alleged in the Complaint.

(5) 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 including information and testimony concerning the conduct
alleged in the Complaint.

(6) With respect to any information, testimony, documents, records
or physical evidence provided by CA to the Investigative Entities,
other than

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Confidential Materials, CA consents to any and all disclosures of
such materials as the USAO and Commission in their sole discretion,
deem appropriate.

(7) Providing active assistance, including assistance by Sullivan &
Cromwell LLP and PricewaterhouseCoopers, in connection with any
investigation, trial or other legal proceeding, including but not
limited to any efforts by the Investigative Entities to obtain
disgorgement of compensation (including compensation received
pursuant to any CA stock option or similar plan) from any present
or former CA officer or employee.

(B) CA agrees that, following expiration of the DPA or the dismissal of
criminal proceedings relating to the DPA, CA will continue to fulfill the
cooperation obligations set forth in this paragraph in connection with any
investigation or civil proceeding relating to or arising out of the conduct
alleged in the Complaint. CA’s obligation to cooperate is not intended to
apply in the event that CA is a defendant in any such proceeding.

VI.

     IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant and its
successors shall make the following internal reforms, to the extent such
reforms have not already begun:

     (A) Terminate officers of the Defendant who were responsible for the
improper accounting, inaccurate financial reporting, and obstruction of justice
alleged in the Complaint.

     (B) Terminate officers and employees who refused to cooperate with CA’s
internal investigation or who otherwise took steps to obstruct or impede that
investigation.

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     (C) Appoint certain new management (“new management” is defined as
individuals who were not members of management at Defendant prior to January 1,
2004), including a new Chief Executive Officer, a new Chief Operating and Chief
Financial Officer, a New Head of Worldwide Sales, and a new General Counsel.

     (D) Add certain new independent directors to CA’s Board of Directors and
undertake corporate governance reforms such that, by December 31, 2005,
Defendant will have:

(1) added a minimum of three new independent directors (“new
independent directors” is defined to mean independent directors who
were not members of CA’s Board of Directors prior to January 1,
2004) to its Board of Directors so that no less than a two-thirds
of the members of the Board of Directors will be independent
directors;

(2) 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 monitor 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 Final Judgment;

(3) established a new Disclosure Committee composed of the Chief
Executive Officer, Chief Compliance Officer, Chief Operating
Officer, Chief Financial 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
Commission and the issuance of significant press releases; and

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(4) 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 the DPA describing CA’s efforts to
comply with this Final Judgment 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 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.

     (E) By December 31, 2005, (1) establish new comprehensive records
management policies and procedures, as well as testing programs to ensure
compliance therewith; and (2) 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 (see below).

     (F) Establish a comprehensive Compliance and Ethics Program such that, by
December 31, 2005, CA will:

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(1) 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;

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

(3) 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.

     (G) By December 31, 2005, reorganize the CA 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 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
and enhanced 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.
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 Paragraphs VI(K)(7) and VI(K)(8) of this Final Judgment.

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     (H) Reorganize and enhance its Internal Audit Department. CA’s Internal
Audit Department will report directly to both the Audit Committee of CA’s Board
of Directors and CA’s General Counsel. CA also agrees to hire at least five
additional internal auditors by December 31, 2005.

     (I) By December 31, 2005, establish a written plan designed to ensure the
continued 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:

(1) 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 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;

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

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

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

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     (J) By December 31, 2005, (1) enhance and maintain CA’s current telephone
hotline to provide a means for employees anonymously to report any potential
violations of law or other misconduct; (2) publicize within CA the existence
and purpose of the hotline; and (3) ensure employs that no negative employment
action will be taken against any employee who makes a report through the
hotline.

     (K) In accordance with the procedure specified in subparagraph (L) below,
CA will retain and compensate an independent individual or entity to examine
CA’s compliance with this Final Judgment and to conduct a comprehensive review
of the areas specified in Subparagraphs (1) through (6) below, and to make
recommendations to the Board of Directors for review and implementation, after
consultation with the USAO and Commission, regarding best practices in these
areas (the “Independent Examiner”). The Independent Examiner will, in addition
to examining CA’s compliance with this Final Judgment:

(1) examine CA’s practices for the recognition of software licensing
revenue;

(2) 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);

(3) examine CA’s implementation of a new ERP
information technology system;

(4) examine CA’s Internal Audit Department;

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

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

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(7) within six months of appointment, issue a report to the USAO,
the Commission and to CA’s Board of Directors making
recommendations regarding best practices the areas specified in
Subparagraphs (1) to (6) of this paragraph;

(8) issue quarterly reports to the USAO, the Commission and to CA’s
Board of Directors on CA’s compliance with this Final Judgment
during the term of the Independent Examiner’s appointment;

(9) have reasonable access to all of CA’s books and records and the
ability to meet privately with CA employees; and

(10) 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 Commission) 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 reviews under
Paragraph VI(K)(8), the Commission and the USAO 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 Commission and the USAO) 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 engagement of the Independent Examiner, the
Commission and the USAO shall provide CA with an opportunity to be
heard with respect to CA’s implementation

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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 an improved 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.

     (L) Within 30 days of the date of execution of the DPA, CA will submit to
the Commission and the USAO 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
Commission and the USAO, within 30 days of such notice, will 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
Commission and the USAO have jointly approved three candidates. Then, the
Commission, USAO and CA will jointly submit the three candidates to the Court.
The Commission and the USAO 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 Commission,
the USAO and CA will agree upon a different procedure for the appointment of
the Independent

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Examiner and the remainder of the terms, conditions and obligations of this
Final Judgment will remain in full effect.

     (M) Except in respect of communications with the Commission or the USAO,
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 Commission and the USAO,
the Independent Examiner shall return to CA all documents reflecting or
referring to non-public business and financial information of CA.

VII.

     IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that the Consent is
incorporated herein with the same force and effect as if fully set forth
herein, and that Defendant shall comply with all of the undertakings and
agreements set forth therein.

VIII.

     IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that this Court shall retain
jurisdiction of this matter for all purposes.

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IX.

     IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, there being no just
reason for delay, the Clerk of the Court is hereby directed to enter this Final
Judgment forthwith.

     Dated:

	 	 	 
	

	 	SO ORDERED:
	 
	 	 
	

	 	
 
	

	 	THE HONORABLE I. LEO GLASSER

UNITED STATES DISTRICT JUDGE

EASTERN DISTRICT OF NEW YORK

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	UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK
	 	 

	
 	 	 

	 

SECURITIES AND EXCHANGE COMMISSION,
 

Plaintiff, 
 
 
 

v. 
 
 

COMPUTER
ASSOCIATES 

INTERNATIONAL, INC., 

 

Defendant. 

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      04 Civ.    (ILG)
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CONSENT OF DEFENDANT COMPUTER ASSOCIATES INTERNATIONAL, INC.

I.

     Defendant Computer Associates International, Inc. (“CA” or the
“Defendant”), being fully apprised of its rights, having had the opportunity to
confer with legal counsel, having read and understood the terms of the Final
Consent Judgment Of Permanent Injunction And Other Relief As To Defendant
Computer Associates International, Inc. (“Final Judgment”), waives service of a
summons and the complaint in this action, enters a general appearance, admits
the Court’s jurisdiction over Defendant and over the subject matter of this
action, and waives the entry of findings of fact and conclusions of law
pursuant to Fed. R. Civ. P. 52. Without further notice, trial, or argument,
and without admitting or denying the allegations of the complaint (except as to
personal and subject matter jurisdiction, which Defendant admits), Defendant

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hereby consents to the entry of the Final Judgment in the form attached
hereto and incorporated by reference herein, which, among other things:

	a.	 	Permanently restrains and enjoins Defendant from violating Section
17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §
77q(a)];
	 
	b.	 	Permanently restrains and enjoins Defendant from violating Section
10(b) of the Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)]
and Rule 10b-5 [17 C.F.R. § 240.10b-5] promulgated thereunder;
	 
	c.	 	Permanently restrains and enjoins Defendant from violating Section
13(b)(2) of the Exchange Act [15 U.S.C. § 78m(b)(2)];
	 
	d.	 	Permanently restrains and enjoins Defendant from violation of Section
13(a) of the Exchange Act [15 U.S.C. § 78m(a)], and Rules 12b-20, 13a-1,
and 13a-13 [17 C.F.R. §§ 240.12b-20, 240.13a-1, 240.13a-13] promulgated
thereunder;
	 
	e.	 	Directs CA, consistent with the Deferred Prosecution Agreement (“DPA”)
entered into between Defendant and the United States Attorney’s Office
(“USAO”) filed under the Criminal Docket Number CR 04-837 (ILG)
(E.D.N.Y.), to cooperate fully with the continuing investigations
relating to CA by the Commission staff, USAO and Federal Bureau of
Investigation;
	 
	f.	 	Directs CA, consistent with the DPA, to undertake various internal
reforms specified in the Final Judgment, including, but not limited to,
adding certain new management and independent directors, establishing a
Compliance Committee and a Disclosure Committee, establishing new
comprehensive records management policies, taking steps to implement best
practices regarding recognition of software license revenue, establishing
a

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	 	 	comprehensive compliance and ethics program, reorganizing CA’s Finance and
Internal Audit Departments, establishing a plan to improve communication
with government agencies engaged in inquiries or investigations relating
to CA, enhancing and maintaining CA’s current hotline for employees to
report potential violations of the law, or other misconduct, and retaining
an Independent Examiner to examine and issue a report on its accounting
practices.

II.

     Defendant waives entry of findings of fact and conclusions of law pursuant
to Rule 52 of the Federal Rules of Civil Procedure, and hereby consent to the
entry of the Final Judgment without further notice.

III.

     Defendant waives the right, if any, to appeal from the entry of the Final
Judgment.

IV.

     Defendant enters into this Consent voluntarily and represents that no
threats, offers, promises, or inducements of any kind have been made by the
Commission or any member, officer, employee, agent, or representative of the
Commission to induce Defendant to enter into this Consent.

V.

     Defendant agrees that this Consent shall be incorporated into the Final
Judgment with the same force and effect as if fully set forth therein.

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VI.

     Defendant will not oppose the enforcement of the Final Judgment on the
ground, if any exists, that it fails to comply with Rule 65(d) of the Federal
Rules of Civil Procedure, and hereby waives any objection based thereon.

VII.

     Defendant waives service of the Final Judgment and agrees that entry of
the Final Judgment by the Court and filing with the Clerk of the Court will
constitute notice to Defendant of its terms and conditions. Defendant further
agrees to provide counsel for the Commission, within thirty days after the
Final Judgment is filed with the Clerk of the Court, with an affidavit or
declaration stating that Defendant has received and read a copy of the Final
Judgment.

VIII.

     Consistent 17 C.F.R. 202.5(f), this Consent resolves only the claims
asserted against Defendant in this civil proceeding. Defendant acknowledges
that no promise or representation has been made by the Commission or any
member, officer, employee, agent or representative of the Commission with
regard to any criminal liability that may have arisen or may arise from the
facts underlying this action or immunity form any such criminal liability.
Defendant waives any claim of Double Jeopardy based upon the settlement of this
proceeding, including the imposition of any remedy or civil penalty herein.
Defendant further acknowledges that the Court’s entry of a permanent injunction
may have collateral consequences under federal or state law and the rules and
regulations of self-regulatory organizations, licensing boards, and other
regulatory organizations. Such collateral consequences include, but are not
limited to, a statutory disqualification with respect to membership or
participation in, or association with a member of,

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a self-regulatory organization. This statutory disqualification has
consequences that are separate from any sanction imposed in an administrative
proceeding. In addition, in any disciplinary proceeding before the Commission
based on the entry of the injunction in this action, Defendant understands that
it shall not be permitted to contest the factual allegations of the complaint
in this action.

IX.

     Defendant understands and agrees to comply with the Commission’s policy
“not to permit a defendant or respondent to consent to a judgment or order that
imposes a sanction while denying the allegation in the complaint or order for
proceedings.” 17 C.F.R. § 202.5. In compliance with this policy, Defendant
agrees: (i) not to take any action or to make or permit to be made any public
statement denying, directly or indirectly, any allegation in the complaint or
creating the impression that the complaint is without factual basis; and (ii)
that upon the filing of this Consent, Defendant hereby withdraws any papers
filed in this action to the extent that they deny any allegation in the
Complaint. If Defendant breaches this agreement, the Commission may petition
the Court to vacate the Final Judgment and restore this action to its active
docket for all purposes. Nothing in this paragraph affects Defendant’s (i)
testimonial obligations; or (ii) right to take legal or factual positions in
defense of litigation or other legal proceedings in which the Commission is not
a party.

X.

     Defendant hereby waives any rights in the Equal Access to Justice Act, the
Small Business Regulatory Enforcement Fairness Act of 1996, or any other
provision of law to pursue reimbursement of attorney’s fees or other fees,
expenses, or costs expended by Defendant to

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defend this action. For these purposes, Defendant agrees that it is not the
prevailing party in this action since the parties have reached a good faith
settlement.

XI.

     In connection with this action and any related judicial or administrative
proceeding or investigation commenced by the Commission or to which the
Commission is a party, Defendant (i) agrees to appear and be interviewed by
Commission staff at such times and places as the staff requests upon reasonable
notice; (ii) will accept service by mail or facsimile transmission of notices
or subpoenas issued by the Commission for documents or testimony at
depositions, hearings or trials, or in connection with any related
investigation by Commission staff; (iii) appoints Defendant’s undersigned
attorney as agent to receive service of such notices and subpoenas; (iv) with
respect to such notices and subpoenas, waives the territorial limits on service
contained in Rule 45 of the Federal Rules of Civil Procedure and any applicable
local rules, provided that the party requesting the testimony reimburses
Defendant’s travel lodging, and subsistence expenses at the then-prevailing
U.S. Government per diem rates; and (v) consents to personal jurisdiction over
Defendant in any United States District Court for purposes of enforcing any
such subpoena.

XII.

     Defendant agrees that the Commission may present the Final Judgment to the
Court for signature and entry without further notice.

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XIII.

     Defendant agrees that this Court shall retain jurisdiction over this
matter for the purpose of enforcing the terms of the Final Judgment.

	 	 	 	 	 
	 	COMPUTER ASSOCIATES INTERNATIONAL, INC.

 	 
	 	By:  	/s/ Lewis S. Ranieri
 	 
	 	 	Lewis S. Ranieri 	 
	 	 	Chairman, Board of Directors
Computer Associates International, Inc.
Defendant 	 
	 

	 	 	 
	State of New York
 

County
of Suffolk

	 	)

) ss.:

)

On September 21, 2004, Lewis S. Ranieri, a person known to me, personally
appeared before me and acknowledged executing the foregoing Consent with full
authority to do so on behalf of Computer Associates International, Inc. as its
Chairman of its Board of Directors.

/s/ Carole Wilkinson

Notary Public

State of New York

Commission No. 4624866

My commission expires on 8/31/06

Approved as to form:

/s/ Robert J. Giuffra, Jr.

Robert J. Giuffra, Jr., Esq.

Sullivan & Cromwell LLP

Counsel to Defendant

Attorneys for Defendant

Computer Associates International, Inc.

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MARK K. SCHONFELD (MS-2798)

REGIONAL DIRECTOR

Attorney for Plaintiff

SECURITIES AND EXCHANGE COMMISSION

Northeast Regional Office

233 Broadway

New York, N.Y. 10279

(646) 428-1650

	 	 	 
	UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK
	 	 

	

	 	X

	 

SECURITIES AND EXCHANGE COMMISSION,
 

Plaintiff, 
 
 
 

-against- 
 
 

COMPUTER
ASSOCIATES 

INTERNATIONAL, INC. 

 

Defendant. 

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:           Civ.         (ILG)
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:      COMPLAINT

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	 	X

     Plaintiff Securities and Exchange Commission (“Commission”), for its
Complaint against Computer Associates International, Inc. (“CA” or
“Defendant”), alleges as follows:

PRELIMINARY STATEMENT

     1. CA, through various former senior executives and other employees,
engaged in a widespread practice that resulted in the improper recognition of
revenue by CA, one of the world’s largest software companies. During at least
the Fourth Quarter of Fiscal Year (“FY”) 1998 through the Second Quarter of
FY2001 (January 1, 1998 through September 30, 2000), CA prematurely recognized
revenue from software contracts that had not yet been executed by both CA and
its customer, in violation of Generally Accepted Accounting Principles
(“GAAP”). Through the conduct of various executives and other employees, CA
held its books open for

 

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several days after the end of each quarter to prematurely record in that
quarter revenue from contracts that were not executed by customers or CA until
several days or more after the expiration of the quarter (the “Extended
Quarters Practice”). CA often concealed this practice by using licensing
contracts that falsely bore preprinted signature dates for the last day of the
quarter that had just expired, rather than the subsequent dates on which the
contracts actually were executed.

     2. As a result of this improper Extended Quarters Practice, CA made
material misrepresentations and omissions about its revenue and earnings in
Commission filings and other public statements from at least the Fourth Quarter
of FY1998 through the Second Quarter of FY2001. For the First, Second, Third
and Fourth Quarters of FY2000, respectively, CA inflated its properly recorded
revenue by approximately 25%, 53%, 46%, and 22% by improperly including
prematurely recognized revenue from contracts not executed by CA or CA’s
customers by the quarter’s end. From the Fourth Quarter of FY1998 through the
Second Quarter of FY2001, CA prematurely recognized over $3.3 billion in
revenue from at least 363 contracts that CA’s customer or CA signed after the
quarter close. CA’s reported revenues and earnings per share from the Fourth
Quarter of FY1998 through the Fourth Quarter of FY2000 appeared to meet or
exceed the consensus estimates of Wall Street analysts, but CA failed to
disclose that those reported results improperly included prematurely recognized
revenue and did not comply with GAAP. After CA substantially refrained from
recognizing revenue prematurely from contracts that its customers had signed
after quarter end during the First Quarter of FY2001, the company missed its
earnings estimate and CA’s stock price dropped over 43% in a single day. Until
September 2000, CA continued to recognize revenue from contracts that CA signed
after quarter end.

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VIOLATIONS

     3. By virtue of the conduct alleged in this Complaint: CA, directly or
indirectly, singly or in concert, has engaged in acts, practices and courses of
business that constitute violations of Section 17(a) of the Securities Act of
1933 (“Securities Act”), 15 U.S.C. § 77q(a); and Sections 10(b), 13(a),
13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 (“Exchange
Act”), 15 U.S.C. §§ 78j(b), 78m(a), 78(m)(b)(2)(A) and 78(m)(b)(2)(B); and
Rules 10b-5, 12b-20, 13a-1, and 13a-13, 17 C.F.R. §§ 240.10b-5, 240.12b-20,
240.13a-1, and 240.13a-13 thereunder.

     4. Unless CA is permanently restrained and enjoined by this Court, it will
again engage in the acts, practices, and courses of business set forth in this
Complaint and in acts, practices, and courses of business of similar type and
object. By this action, the Commission seeks judgment, among other things:
(a) permanently enjoining Defendant from engaging in the acts, practices and
courses of business alleged herein, pursuant to Section 20(b) of the Securities
Act, 15 U.S.C. §77t(b), and Section 21(d) of the Exchange Act, 15 U.S.C.
§78u(d); and (b) granting such other relief as the Court deems just and proper.

JURISDICTION AND VENUE

     5. The Commission brings this action pursuant to the authority conferred
upon it by Section 20 of the Securities Act, 15 U.S.C. § 77t; and Section 21 of
the Exchange Act, 15 U.S.C. § 78u, seeking to restrain and enjoin permanently
the Defendant from engaging in the acts, practices, and courses of business
alleged herein, and seeking civil penalties and other relief.

     6. The Defendant, directly and indirectly, has used the means or
instrumentalities of interstate commerce, or of the mails, or of the facilities
of a national securities exchange, in connection with the transactions, acts,
practices, and courses of business alleged herein.

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     7. Certain of these transactions, acts, practices and courses of business
occurred in the Eastern District of New York, including conduct by the
employees and executives of CA while at CA’s corporate headquarters in
Islandia, New York.

     8. Accordingly, this Court has jurisdiction over this action, and venue is
proper in this district, pursuant to Section 20 of the Securities Act, 15
U.S.C. § 77t; and Sections 21 and 27 of the Exchange Act, 15 U.S.C. §§ 78u and
78aa.

DEFENDANT

     9. CA is a Delaware corporation headquartered in Islandia, New York. CA’s
fiscal year concludes at the end of each March, such that, for example, CA’s
FY2000 ended on March 31, 2000. According to CA’s Form 10-K Annual Report for
the fiscal year ended March 31, 2004 (“2004 10-K”), CA “design[s], market[s],
and license[s] computer software products that allow businesses to efficiently
run and manage critical aspects of their IT technology.” CA is one of the
largest computer software companies in the world; according to its 2004 10-K,
more than 95% of the Fortune 500® companies use its software products. CA’s
common stock trades on the New York Stock Exchange and is registered pursuant
to Section 12(b) of the Exchange Act, 15 U.S.C. §78l(b).

CA’S ACCOUNTING FRAUD

     10. Between at least the Fourth Quarter of FY1998 through the Second
Quarter of FY2001, CA engaged in a widespread practice that allowed for the
premature recognition of revenue from software licensing agreements. Pursuant
to this practice, which is referred to in this Complaint as the “Extended
Quarters Practice,” CA personnel recorded, into the just-elapsed fiscal
quarter, revenue from software contracts that were not finalized and signed by
both CA and its customers until days or weeks after that quarter ended.
Reporting revenue in this fashion

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was improper because it violated GAAP, which required that license
agreements be fully executed by both CA and its customers by quarter end before
recognizing revenue. CA’s reported revenue and earnings per share appeared to
meet or exceed Wall Street analysts’ expectations, when – in truth and fact –
those results were based in part on revenue that CA recognized prematurely and
in violation of GAAP.

     11. In 2003, CA announced that the Audit Committee of its Board of
Directors was conducting an investigation into the timing of revenue
recognition at the company. In a press release dated October 8, 2003, CA
announced the preliminary results of that investigation. Quoting the chair of
the Audit Committee, that press release stated, among other things, that:

The Audit Committee’s investigation is continuing, but
we have determined that CA recognized certain revenue
prematurely in the fiscal year ending March 31, 2000.
The committee found that a number of software
contracts in that fiscal year appear to have been
signed after the end of the quarter in which revenues
associated with such contracts had been recognized.
Those revenues should have been recognized in the
quarter in which the contract was signed.

In that same press release, CA announced that CA had asked for and received the
resignations of those who, according to CA, “oversaw sales accounting during
the relevant time,” including CA’s then-Chief Financial Officer.

     12. On April 26, 2004, CA filed with the Commission a Form 8-K (“Form
8-K”) stating, among other things that:

The Audit Committee’s investigation found accounting
irregularities that led to material misstatements of
the Company’s financial reports for fiscal years 2000
and 2001, and prior periods. The effect of prior
period errors which have an impact on fiscal year 2000
have been considered as part of this restatement. The
Audit Committee believes that several factors
contributed to the improper recognition of revenue in
these periods, including a practice of holding the
financial period open after the end of the

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fiscal quarters, providing customers with contracts
with preprinted signature dates, late
countersignatures by Company personnel, backdating of
contracts, and not having sufficient controls to
ensure the proper accounting under SOP 97-2. In
addition, the Audit Committee found that certain
former executives and other personnel were engaged in
the practice of “cleaning up” contracts by, among
other things, removing fax time stamps before
providing agreements to the outside auditors. These
same executives and personnel also misled the
Company’s outside counsel, the Audit Committee and its
counsel and accounting advisers regarding these
accounting practices.

     13. Also in the Form 8-K, CA announced that it was restating over $2.2
billion in revenue that CA had improperly recognized in FY2000 and FY2001.

Improper Revenue Recognition at CA

     14. During the time period relevant to this Complaint, which is from at
least the Fourth Quarter of FY1998 through the Second Quarter of FY2001, CA
derived its income primarily from licensing software and providing maintenance
for that software. CA’s software operated and maintained powerful “mainframe”
computers, those generally used by businesses and other organizations. Prior
to October 2000, CA’s contract and licensing model involved entering into
long-term licensing contracts, some as long as seven years in duration. Under
that business model, customers paid an initial licensing fee for the software,
plus subsequent licensing fees for the right to use the software in subsequent
years. In addition, customers paid CA for ongoing maintenance such as
technical support. Customers often entered into long-term contracts and spread
out the licensing and maintenance fees over the term of the contract.

     15. For contracts under its pre-October 2000 business model, GAAP allowed
CA to recognize all the license revenue called for during the duration of the
contract up front, during the fiscal quarter in which the software was shipped
and the contract was executed and final.

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SOP 97-2, which the American Institute of Certified Public Accountants
adopted in October 1997,1 requires the following before revenue can be
recognized from a software sale:

	 	•	 	evidence of an arrangement;

	 	•	 	delivery;

	 	•	 	fixed and determinable fees; and

	 	•	 	ability to collect.

When a software company uses contracts requiring signatures by the software
company and its customer, then SOP 97-2 provides that both signatures – the
software company and the customer – are required as “evidence of an
arrangement” before the software company may recognize revenue. During the
period relevant to this Complaint, including but not limited to the Fourth
Quarter of CA’s FY1998 through the Second Quarter of CA’s FY2001, all of CA’s
license agreements required signatures by both CA and the customer.

CA Made Materially False Statements and Omissions in

Filings With the Commission and in Public Statements

     16. During at least the Fourth Quarter of FY1998 through the Second
Quarter of FY2001, CA violated GAAP, including SOP 97-2 and SOP 91-1, by
recording into fiscal quarters that had expired software contracts that were
not executed – and for which “evidence of an arrangement” did not exist – until
a subsequent quarter. This Extended Quarters Practice resulted in CA’s
premature recognition of revenue. As a consequence, CA made material
misrepresentations and omissions of fact concerning CA’s revenues and earnings
for the Fourth Quarter of FY1998 through the Second Quarter of FY2001 in
various public documents and in connection with the

	1	 	SOP 97-2 was preceded by SOP 91-1 (software revenue recognition), which
became effective for financial statements issued after March 15, 1992 (for
fiscal years beginning after December 15, 1991). According to SOP 91-1, para.
50, a software company can only recognize revenue if there is persuasive
evidence of an agreement, and evidence of an agreement is usually provided by a
signed contract. Thus, in addition to being inconsistent with SOP

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offer, purchase and sale of securities. CA’s reported results for at
least the Fourth Quarter of FY1998 through the Fourth Quarter of FY2000
appeared to meet or exceed the revenue and earnings estimates of outside
analysts when, in fact, those reported results did not comply with GAAP and
were false and misleading.

     17. Specifically, the misrepresentations and omissions CA made about its
revenue and earnings per share include the following:

     a. In its Form 8-K, which was not an audited Restatement, CA admits that
the Extended Quarters Practice resulted in CA prematurely recognizing
substantial percentages of revenue for all quarters of FY2000 and the first two
quarters of FY2001. Below is a chart which illustrates the impact of the
premature revenue recognition in each fiscal quarter:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Percentage that
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Properly Recorded
	 	 	 	 	 	 	GAAP Value	 	GAAP Value	 	GAAP Value	 	Revenue was
	 	 	GAAP Value of	 	of Contracts	 	of Contracts	 	of Revenue	 	Inflated by
	 	 	Revenue	 	that CA	 	that Clients	 	Improperly	 	Improperly
	Fiscal	 	Properly	 	Signed After	 	Signed After	 	Accelerated	 	Accelerated
	Quarter
	 	Recorded2
	 	Quarter End
	 	Quarter End
	 	and Recorded
	 	Revenue

	Q1 FY2000
	 	$	977,165,281	 	 	$	122,230,689	 	 	$	122,604,030	 	 	$	244,834,719	 	 	25%
	Q2 FY2000
	 	$	1,047,256,904	 	 	$	90,099,723	 	 	$	467,643,373	 	 	$	557,743,096	 	 	53%
	Q3 FY2000
	 	$	1,239,902,741	 	 	$	170,450,718	 	 	$	401,646,541	 	 	$	572,097,259	 	 	46%
	Q4 FY2000
	 	$	1,748,131,031	 	 	$	179,493,620	 	 	$	199,375,348	 	 	$	378,868,969	 	 	22%
	Q1 FY2001
	 	$	1,135,600,000	 	 	$	126,740,000	 	 	$	15,660,000	 	 	$	142,400,000	 	 	13%
	Q2 FY2001
	 	$	1,462,040,000	 	 	$	214,720,000	 	 	$	4,240,000	 	 	$	218,960,000	 	 	15%

     b. The greatest amount of prematurely recognized revenue as a result of
the

	 	 	97-2, CA#s
Extended Quarters Practice was inconsistent with SOP 91-1.

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Extended Quarters Practice occurred in FY2000, particularly in the Third
Quarter, followed by the Second, Fourth and First Quarters of that Fiscal Year.
If CA had not improperly recognized revenue in each of those fiscal quarters,
CA would not have met analysts’ revenue and earnings estimates. The following
is a chart which shows the impact of the Extended Quarters Practice on CA’s
earnings per share in the four quarters of FY2000 and the extent of the
material misstatements and misrepresentations in the Forms 10-Q and Form 10-K
that CA filed with the Commission which reported each quarterly result, and
related public statements made by CA:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Total Revenue	 	Total Revenue	 	Analyst earnings	 	 	 	EPS without	 	 
	 	 	Properly	 	Improperly	 	per share ("EPS")	 	Announced	 	Improper	 	Overstatement
	Quarter
	 	Recorded3
	 	Recorded
	 	Estimate
	 	EPS
	 	Revenue
	 	of EPS

	Q1 FY2000
	 	$977 million	 	$244 million	 	$ .47	 	$ .494	 	$.29	 	$.20
	Q2 FY2000
	 	$1.047 billion	 	$557 million	 	$ .59	 	$  .60	 	$.05	 	$.55
	Q3 FY2000
	 	$1.240 billion	 	$572 million	 	$ .90	 	$ .915	 	$.31	 	$.60
	Q4 FY2000
	 	$1.748 billion	 	$378 million	 	$1.13	 	$1.136	 	$.82	 	$.31

     c. In addition to misstating the results for the Fourth Quarter of FY2000,
CA’s Form 10-K for FY2000 also was inaccurate and misleading as it (a) repeated
false statements about

	2	 	The amounts in this column do not include the effect of rebooking revenue
improperly accelerated in prior quarters.
	 
	3	 	The amounts in this column do not include the effect of rebooking revenue
improperly accelerated in prior quarters.
	 
	4	 	In its Form 10-Q for the First Quarter of FY2000, CA represented that it had
lost $.80 per share on a diluted basis for that quarter. In its July 20, 1999
press release, CA represented that its first quarter operating earnings per
share was $.49 on a diluted basis, excluding certain amortization expenses and
a $646 million charge related to CA’s purchase of another company.
	 
	5	 	In its Form 10-Q for the Third Quarter of FY2000, CA represented that its
earnings per share for that quarter amounted to $.72 on a diluted basis. In
its January 26, 2000 press release, CA represented that its third quarter
operating earnings per share was $.91 on a diluted basis, excluding acquisition
related amortization charges and a one-time non-cash asset write-down of $37
million.
	 
	6	 	In its Form 10-K for FY2000, CA represented that its earnings per share for
the Fourth Quarter of FY2000 amounted to $.70 on a diluted basis. In its May
15, 2000 press release, CA represented that its fourth quarter operating
earnings per share was $1.13 on a diluted basis, excluding certain acquisition
related amortization charges and a one-time non-cash charge.

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quarterly results as reported in the Forms 10-Q for the First, Second and
Third Quarters, including quarterly revenue and earnings per share; (b)
contained false statements about the Company’s revenue and earnings per share
for the Fourth Quarter of FY2000; (c) contained false statements about the
Company’s annual revenue and earnings results; and (d) failed to disclose the
Extended Quarter’s Practice.

     d. In CA’s Form 10-K for FY2000, the Company listed the quarterly results
for each of the four fiscal quarters. The results for each quarter include the
revenue and earnings per share. For the First, Second and Third Quarter this
information is the same as is listed in the Forms 10-Q that the Company filed,
and, as discussed above, is inaccurate and misleading. The Company also listed
quarterly results for the Fourth Quarter stated above. As discussed above this
information is false and misleading.

     e. CA also misstated the Company’s annual earnings per share for FY2000.
Because the $378 million in contract revenue referenced above was not only
improper revenue for the Fourth Quarter of FY2000, but also for FY2000 as a
whole, CA’s revenue for the year should have been listed as $5.725 billion, not
$6.103 billion, an overstatement of over 6.6%. Without the improperly
recognized revenue, CA’s true diluted annual earnings per share would have been
$2.96 per share, not $3.28 per share as announced.7 CA’s improper revenue
recognition resulted in an overstatement of $0.32 per share, or 10.81%.
Without the improperly recognized revenue, CA would have missed earnings
estimates of $3.28 per share.

     f. In its Form 10-K for FY2000, CA also failed to make a statement
necessary to make statements made not misleading. Specifically, CA failed to
disclose that in order to

	7	 	In its Form 10-K for FY2000, CA represented that its earnings per share for
FY2000 amounted to $1.25 on a diluted basis. In its May 15, 2000 press
release, CA represented that its operating earnings per share for FY2000 was
$3.28 on a diluted basis, excluding certain amortization charges.

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achieve its reported revenue results, CA had held open fiscal quarters,
and its entire fiscal year had also been extended to allow for additional
contracts.

     g. Based on the substantial percentages of improperly recognized revenue
in the First and Second Quarter of FY2001, CA’s Forms 10-Q for each of those
quarters and its Form 10-K for FY2001 were materially false and misleading.

     h. CA’s Extended Quarters practice also resulted in significant contracts
being improperly recorded as revenue in fiscal quarters from the Fourth Fiscal
Quarter of 1998 through each quarter of FY1999. Below is a chart showing the
impact of CA’s Extended Quarters practice in various fiscal quarters in FY1998
and FY1999.

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Percentage that
	 	 	 	 	 	 	 	 	 	 	Properly Recorded
	 	 	 	 	GAAP Value	 	GAAP Value	 	GAAP Value	 	Revenue was
	 	 	GAAP Value of	 	of Contracts	 	of Contracts	 	of Revenue	 	Inflated by
	 	 	Revenue	 	that CA	 	that Clients	 	Improperly	 	Improperly
	Fiscal	 	Properly	 	Signed After	 	Signed After	 	Accelerated	 	Accelerated
	Quarter
	 	Recorded8
	 	Quarter End
	 	Quarter End
	 	and Recorded
	 	Revenue

	Q4 FY1998
	 	$1,419,690,000	 	$0	 	$47,310,000	 	$47,310,000	 	3%
	Q1 FY1999
	 	$912,140,000	 	$67,890,000	 	$66,970,000	 	$134,860,000	 	15%
	Q2 FY1999
	 	$922,760,000	 	$221,990,000	 	$71,250,000	 	$293,240,000	 	32%
	Q3 FY1999
	 	$975,230,000	 	$316,110,000	 	$69,660,000	 	$385,770,000	 	40%
	Q4 FY1999
	 	$1,282,290,000	 	$300,020,000	 	$46,690,000	 	$346,710,000	 	27%

As with FY2000, the improper revenue recognized by CA in the above-referenced
fiscal quarters in FY1998, FY1999, and FY2001 caused CA’s Forms 10-Q and Forms
10-K which corresponded to those reporting periods to be materially false and
misleading.

	8	 	The amounts in this column do not include the effect of rebooking revenue
improperly accelerated in prior quarters.

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     i. In addition, CA repeated the misstatements it made in its Commission
filings by incorporating them by reference in a Form S-4, filed on February 22,
2000, and an amended Form S-4, filed on March 13, 2000, regarding CA’s
acquisition of another public company. Each of the Forms S-4 stated that they
incorporated by reference, among other things, CA’s Form 10-K for FY1999 and
Forms 10-Q for the quarters ending June 30, 1999, September 30, 1999 and
December 31, 1999, thus repeating by reference the false statements specified
above.9

A Systemic and Intentional Practice

     18. The premature recognition of revenue at CA during at least the Fourth
Quarter of FY1998 through the Second Quarter of FY2001 was the result of a
systemic, intentional practice by certain CA personnel. To implement and
conceal this Extended Quarters Practice, CA personnel employed a variety of
improper techniques, many of which rendered the company’s books and records
false and misleading. Indicia of this are:

     a. Some employees at CA called the Extended Quarters Practice the “35-day
month” practice, because generally most quarters were extended by at least 3
business days, although some quarterly extensions lasted longer.

     b. Sometimes, CA had its customers execute contracts bearing pre-printed
dates from the just expired quarter even though the customer did not actually
sign the contract until days or weeks into the new quarter.

	9	 	CA also filed two Forms S-8 which repeated by reference the misstatements
made in the Forms 10-Q for the quarters ending September 30, 1999 and December
31, 1999. The first such Form S-8, filed with the Commission on February 28,
2000, concerned the year 2000 employee stock purchase plan; the second, filed
March 21, 2000, concerned stock incentive plans that had existed at several
companies that CA had acquired. Each of these Forms S-8 incorporated by
reference its Form 10-K for FY1999, all filings made under Section 13(a) of the
Exchange Act since March 31, 1999 (which includes the Forms 10-Q for the
quarters ending June 30, 1999, September 30, 1999 and December 31, 1999, and
future filed periodic reports including the FY2000 and FY2001 Forms 10-K and
the Forms 10-Q for the quarters ending June 30, 2000 and September 30, 2000),
thus repeating the false statements contained in those filings.

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     c. Other times, even when the customer signed the contract before quarter
end, CA did not execute the contract until the following quarter.

When the Extended Quarters Practice Substantially Ended,

CA Missed Its Quarterly Estimates

     19. CA substantially stopped prematurely recognizing revenue for software
contracts signed after quarter end by CA’s customers during the First Quarter
of FY2001 (quarter ended June 30, 2000). That quarter, CA missed its Wall
Street earnings estimates. CA issued a press release on July 3, 2000 stating
that it would miss the analysts’ estimates, specifically citing the fact that
the company did not complete several large contracts that they had hoped to
conclude before the close of the quarter. This was only the second time in
CA’s then recent history that CA missed Wall Street’s estimates. The next
trading day, July 5, 2000, CA’s stock dropped over 43% from $51.12 to $28.50 as
the market reacted to the news. Subsequent days of trading brought negligible
gains.

     20. CA continued to prematurely recognize revenue from contracts that CA
signed after quarter end (although, with a few exceptions, the customer did
sign contract by quarter end) for the first two quarters of FY2001, after which
that practice substantially stopped.

     21. CA profited from its accounting fraud by inflating its stock price
when it acquired another public company in a stock swap merger.

CA Obstructed the Commission’s Investigation

     22. During the course of the Commission’s investigation, which began in
February 2002, both as an entity and through the conduct of specific then
executives, CA obstructed the Commission staff’s investigation.
Notwithstanding several Commission document requests, CA, through certain
executives and in-house counsel, withheld certain incriminating documents for

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more than one year; such documents were responsive to the initial document
request issued to CA by the Commission staff. In addition, certain CA senior
executives made false statements directly to the staff. Other CA executives
made false or misleading statements to CA’s outside counsel while knowing that
CA’s outside counsel would pass on the false and misleading statements to the
government.

FIRST CLAIM FOR RELIEF

Section 17(a) of the Securities Act,

15 U.S.C. § 77q(a)

     23. The Commission realleges and incorporates by reference herein each and
every allegation contained in paragraphs 1 through 22.

     24. CA, directly or indirectly, singly or in concert, by use of the means
or instruments of transportation or communication in interstate commerce, or of
the mails, in the offer or sale of CA’s securities, knowingly or recklessly,
has, (a) employed, is employing or is about to employ, devices, schemes and
artifices to defraud; (b) made untrue statements of material fact, or has
omitted to state material facts necessary in order to make statements made, in
light of the circumstances under which they were made, not misleading; and/or
(c) engaged, is engaging and is about to engage in transactions, acts,
practices and courses of business which operated or would have operated as a
fraud or deceit upon purchasers of CA securities and upon other persons,
including in CA’s filings for FY1998 through FY2001, including the Forms 10-K
for FY1999, FY2000, and FY2001 and Forms 10-Q for FY1999 and FY2000 and the
Fourth Quarter of FY1998 and the First and Second Quarters of FY2001, and Forms
S-4 and S-8, and in other public statements.

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     25. By reason of the foregoing, CA, singly or in concert, directly or
indirectly, has violated, and unless enjoined will again violate, Section 17(a)
of the Securities Act, 15 U.S.C. § 77q(a).

SECOND CLAIM FOR RELIEF

Section 10(b) of the Exchange Act,

15. U.S.C. § 78j(b), and Rule 10b-5,

17 C.F.R. § 240.10b-5, thereunder

     26. The Commission realleges and incorporates by reference herein each and
every allegation contained in paragraphs 1 through 22.

     27. CA, directly or indirectly, singly or in concert, by use of the means
or instrumentalities of interstate commerce, or of the mails, or of the
facilities of a national securities exchange, in connection with the purchase
or sale of CA securities, knowingly or recklessly, has: (a) employed, is
employing or is about to employ, devices, schemes and artifices to defraud; (b)
made, is making or is about to make untrue statements of material fact, or has
omitted, is omitting, or is about to 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/or (c) engaged, is engaging and is about to
engage in transactions, acts, practices and courses of business which operated
or would have operated as a fraud or deceit upon purchasers of CA securities
and upon other persons, including in CA’s filings for FY1998 through FY2001,
including the Forms 10-K for FY1999, FY2000, and FY2001 and Forms 10-Q for
FY1999 and FY2000 and the Fourth Quarter of FY1998 and the First and Second
Quarters of FY2001, and Forms S-4 and S-8, and in other public statements.

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     28. By reason of the foregoing, CA, singly or in concert, directly or
indirectly, has violated, and unless enjoined will again violate, Section 10(b)
of the Exchange Act, 15. U.S.C. § 78j(b), and Rule 10b-5, 17 C.F. R. §
240.10b-5, thereunder.

THIRD CLAIM FOR RELIEF

Violations of Section 13(a) of the Exchange Act,

15 U.S.C. §78m(a), and Rules 12b-20, 13a-1, and 13a-13,

and 17 C.F.R. §§ 240.12b-20, 240.13a-1,

and 240.13a-13 thereunder

     29. The Commission realleges and incorporates by reference herein each and
every allegation contained in paragraphs 1 through 22.

     30. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13
thereunder require issuers of registered securities to file with the Commission
factually accurate annual and quarterly reports. Exchange Act Rule 12b-20
provides that in addition to the information expressly required to be included
in a statement or report, there shall be added such further material
information, if any, as may be necessary to make the required statements, in
the light of the circumstances under which they are made not misleading.

     31. By reason of the foregoing, CA violated Section 13(a) of the Exchange
Act, 15 U.S.C. § 78m(a), and Rules 12b-20, 13a-1, and 13a-13, 17 C.F.R. §§
240.12b-20, 240.13a-1, and 240.13a-13, thereunder.

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FOURTH CLAIM FOR RELIEF

Violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act,

15 U.S.C. §§78m(b)(2)(A) and 78m(b)(2)(B)

     32. The Commission realleges and incorporates by reference herein each and
every allegation contained in paragraphs 1 through 22.

     33. Section 13(b)(2)(A) of the Exchange Act, 15 U.S.C. § 78m(b)(2)(A)
requires issuers to make and keep books, records and accounts which in
reasonable detail, accurately and favorably reflect the transactions and
dispositions of assets of the issuer.

     34. Section 13(b)(2)(B) of the Exchange Act, 15 U.S.C. § 78m(b)(2)(B),
requires, among other things, that issuers maintain a system of internal
accounting controls that permit the preparation of financial statements in
conformity with GAAP.

     35. By reason of the foregoing, CA has violated sections 13(b)(2)(A) and
13(b)(2)(B) of the Exchange Act, 15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B).

PRAYER FOR RELIEF

     WHEREFORE, the Commission respectfully requests a Final Judgment:

I.

          Permanently enjoining CA, and its agents, servants, employees and
attorneys and all persons in active concert or participation with them who
receive actual notice of the injunction by personal service or otherwise, and
each of them, from committing future violations of Section 17(a) of the
Securities Act, 15 U.S.C. § 77q(a); and Sections 10(b), 13(a), 13(b)(2)(A) and
13(b)(2)(B) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78m(a), 78m(b)(2)(A) and
78m(b)(2)(B) and Rules 10b-5, 12b-20, 13a-1 and 13a-13, 17 C.F.R. §§ 240.10b-5,
240.12b-20, 240.13a-1, and 240.13a-13 thereunder.

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II.

     Granting such other and further relief as the Court may deem just and proper.

Dated: New York, New York

             September 21, 2004

	 	 	 
	 

	 	

	

	 	Mark K. Schonfeld (MS-2798)
	

	 	Regional Director
	

	 	 
	

	 	Attorney for Plaintiff
	

	 	SECURITIES AND EXCHANGE COMMISSION
	

	 	Northeast Regional Office
	

	 	233 Broadway
	

	 	New York, New York 10279
	

	 	(646) 428-1650

Of Counsel:

     

Alexander M. Vasilescu

     

Danielle Friedman

     

William J. Estes

     

Christopher M. Bruckmann

18

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