Allstate Subpoenaed Over CA DealNov 22, 2002 | Newsday
Federal prosecutors examining Computer Associates' accounting practices are scrutinizing the timing of an $80-million software contract with Allstate Corp. booked three years ago.
As part of the probe, they have issued a grand jury subpoena to the insurance giant to determine whether CA recorded revenue in the proper quarter, according to a former employee who is cooperating with the investigation. The booking of revenue has figured prominently in a yearlong investigation of the Islandia company by the Securities and Exchange Commission and the Justice Department into whether the company's stock price was manipulated.
CA yesterday sought to downplay the subpoena, and it has consistently denied improper accounting. In a memo to employees, chairman and chief executive Sanjay Kumar said: "Talk of 'grand jury subpoenas' does not necessarily mean that an investigation has intensified or even that a special grand jury has been convened. As far as we know, this has not happened."
Allstate spokesman Michael Trevino confirmed the company received a grand jury subpoena, but declined to say when or what it requests.
An expert said grand juries generally are used in investigations "as engines of discovery," or to indict. CA has not been charged with any wrongdoing, and there's no indication a special grand jury has been convened specifically for the CA case.
Nevertheless, "Prosecutors don't do this without thinking they're on the trail of something," said Jack Coffee, an expert in securities legal matters at Columbia University, emphasizing he was unaware of specifics in CA's case.
The grand jury subpoenas were reported in yesterday's New York Times.
Meanwhile, at least one former CA board member has voluntarily provided information to investigators, though none has been subpoenaed. "Willem de Vogel spoke with investigators voluntarily," said CA spokesman Dan Kaferle. "He had been a member of the audit committee throughout the relevant period and felt he had the fullest knowledge of the company's accounting practices."
It's uncertain whether others, including New York Stock Exchange chairman Richard Grasso and Stony Brook University president Shirley Strum Kenny, both of whom have left the board, have been interviewed by regulators. An NYSE spokesman said, "As a matter of policy we don't comment on CA matters."
Ernst & Young, CA's former auditor, has received a subpoena from the SEC, and is cooperating, but hasn't received a grand jury subpoena, said spokesman Les Zuke.
Kelly Franklin, a former employee in CA's Lisle, Ill., regional office, said officials of the U.S. Attorney's Office in Brooklyn and the SEC interviewed her in September. Franklin and other former employees told investigators the Allstate deal was completed in early 1999, and technically should have been booked in the fourth quarter of fiscal 1999, but CA booked it in the first quarter of 2000.
Franklin, who claims in a filing with the Equal Employment Opportunity Commission that the company discriminated against her, left the company in January after suffering a nervous breakdown. The company, she said, had been trying to force her out.
CA has rebuffed the claims in her filing, and the contentions about Allstate.
"That transaction was booked in the quarter in which it was signed," spokesman Robert Gordon said, "the first calendar quarter of 2000."
Separately, a former CA employee who received a grand jury subpoena said she was told by prosecutors it was prompted by terms of a separation agreement with the company that forbids voluntary cooperation with state or federal investigations - an assertion CA denied. "If others have been asked to provide information, whether through informal requests or formal subpoenas, we have encouraged them to do so," Kumar wrote to employees yesterday.
While CA has waived former employees' confidentiality agreements, said the source, noting that she signed one, terms of some separation agreements restrict former employees from voluntarily participating in investigations.
According to one such agreement shown to Newsday, former employees agree that they "will not voluntarily participate in any other investigation, suit or proceeding by any other individual or agency, state or federal, against the company except as may otherwise be permitted by the Older Workers Benefit Protection Act, and its governing regulations, or as is otherwise required by law."
CA spokesman Charlie Holleran denied that any contract language has restricted any employee from giving testimony, and suggested any former CA employee contact CA's lawyers to clear up any concerns.