NEW YORK, March 8, 2002 (PRIMEZONE) -- The following is an announcement from the law firm of Wechsler Harwood Halebian & Feffer LLP.
Wechsler Harwood Halebian & Feffer LLP commenced a class action lawsuit in the United States District Court for the Eastern District of New York on behalf of purchasers of Computer Associates, Inc. ("CA" or the "Company") (NYSE:CA) securities between May 28, 1999, and February 25, 2002 (the "Class Period").
The Complaint alleges that defendants violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, by issuing materially false and misleading statements to the market.
Specifically, beginning prior to May, 1999, the Company falsely indicated that it had penetrated the distributed systems market when, in fact, it was giving away its distributed system software free, or at nominal additional cost, to customers who were also extending mainframe software licenses, and attributed large portions of the resulting revenue to the non-mainframe products.
Also, beginning prior to May, 1999, and ending in October, 2000, when the Company extended a license during its term, it recognized revenue for the entire new license. Until June, 2000, when CA began using new auditors, CA did not "back out" the revenue from the unexpired portion of the old license, double-counting this revenue. After June, 2000, CA began backing out this figure in an obscure line item -- but never disclosed that this caused revenue to be overstated by more than one hundred million dollars each quarter prior June, 2000.
In order to hide a severe drop in revenue as measured by Generally Accepted Accounting Principles ("GAAP"), defendants announced a "new business model," which they represented involved offering more flexible licensing terms to customers.
In fact, the "new business model" was a cover to institute new, non-GAAP compliant accounting (which the Company called "pro forma, pro rata"), and to obscure the fact that the switch from long-term licenses to flexible subscriptions was not a pro-active move, but a symptom of the obsolescence of CA's main product line. While the stated goal of the "new business model" was to provide customers more flexible terms, the real purpose was to cover up the fact that CA could no longer get many of their mainframe customers to purchase the long-term licences of mainframe software which have been the Company's mainstay.
After the announcement of the "new business model" in October, 2000, the Company issued press releases heralding moderate growth, though the GAAP figures showed a revenue decrease of nearly sixty percent.
The "pro forma, pro rata" method counted revenue from old license sales in current and future periods, using old revenues to buttress the current, deteriorating sales. Defendants attempted to have their cake and eat it, too: in a strong economy, CA recognized all the revenue from its sales immediately, even double-counting some revenue, showing impressive numbers. In a sagging economy, they obscured the real loss of sales by changing to a method of accounting so back-loaded that it does not conform to GAAP. The "pro forma, pro rata" method also did not make the distinctions between product and service revenue required by GAAP, obscuring the distinction and further hiding the deterioration in sales.
CA has continued to report its GAAP figures, as it is required by the Securities and Exchange Commission ("SEC") to do. Incredibly, defendants have falsely stated that the GAAP figures are not reflective of the Company's financial position, and that the "pro forma, pro rata" figures do accurately reflect the Company's financial position.
The Company's true condition, however, is shown by the conduct of defendants during the Class Period. After announcing the "new business model" but before reporting under it for the first time, and contrary to the Company's representations that the rosy picture created by the "pro forma, pro rata" figures was an accurate portrayal of the Company's position, the defendants engineered a clandestine, firm-wide layoff, hiding the terminations as individual performance-based firings. They fired possibly as many as a thousand employees with no severance package, and continue to deny that the firings were a layoff, even though executives involved in the layoff confirmed it to the New York Times (as reported on March 20, 2001). More recently, the Company was forced to withdraw a planned debt offering after Moody's questioned the quality of the Company's credit. As a result, CA admits, it was forced to draw down $600 million on one credit line to pay another.
The desperate cost-cutting by secret layoff, use of its new unrecognized accounting just when its revenue dropped sharply, and the use of credit lines to service existing debt, demonstrate defendants are keenly aware of the precarious financial condition of the Company, and have deliberately misled the investing public.
The misleading picture the Company has presented has not gone unquestioned. On February 22, 2002, the Company confirmed it was aware that both the SEC and FBI were investigating the Company's accounting for civil, and in the case of the FBI, criminal violations. News of the criminal and civil probes, which began to surface on February 20, caused investors to flee the stock, which fell from a February 19 closing price of $25.31 to a February 22 close of $15.99, a drop of 36.8%.
You may retain Wechsler Harwood, or other counsel of your choice, to serve as your counsel in this action. Plaintiff seeks to recover damages on behalf of all those who purchased or otherwise acquired CA securities during the Class Period. If you purchased or otherwise acquired CA securities during the Class Period, and either lost money on the transaction or still hold the securities, you may wish to join in the action to serve as lead plaintiff.
If you purchased CA securities during the Class Period, you may, no later than April 26, 2002, request that the Court appoint you as lead plaintiff. A lead plaintiff is a representative party who acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the Court must determine the class member's claim is typical of the claims of other class members, and the class member will adequately represent the class. Under certain circumstances, one or more class members may together serve as "lead plaintiffs." Your ability to share in any recovery is not, however, affected by the decision whether or not to serve as a lead plaintiff. You may retain Wechsler Harwood, or other counsel of your choice, to serve as your counsel in this action.
Wechsler Harwood has extensive experience representing shareholders in class actions and has served as lead counsel on behalf of shareholders in many such actions. The reputation and expertise of this firm in shareholder and other class actions has repeatedly been recognized by the courts.
If you have questions or information regarding this action, or if you are interested in serving as a lead plaintiff in this action, you may call or write:
Wechsler Harwood Halebian & Feffer LLP, 488 Madison Avenue, New York, New York 10022, toll free 877-935-7400, or by contacting Patricia Guiteau, Wechsler Harwood Shareholder Relations Department; Computer Associates.: pguiteau@whhf.com.
More information on this and other class actions can be found on the Class Action Newsline at www.primezone.com/ca