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The qualities that attracted Kenneth A. Handal to the general counsel position at Computer Associates may have made other candidates turn and run away. He joined the company last July as it was reeling from an investment fraud scandal that had driven out many of its top managers, including CEO Sanjay Kumar and Stephen Woghin, Handal’s predecessor. Both men were subsequently indicted. In September, Woghin pleaded guilty to securities fraud conspiracy and obstruction of justice. He is awaiting sentencing. Kumar, who pleaded not guilty to similar charges, is free on $5 million bail. Two weeks ago, Eastern District of New York Judge I. Leo Glasser appointed an independent examiner to monitor Computer Associates’ compliance with a deferred prosecution agreement it entered into with federal prosecutors last fall. Part of the examiner’s job is to monitor Handal’s work. Nonetheless, in a recent interview, Handal, 56, called the once-vacant general counsel’s seat “very attractive” because of the difficulties the company was having when he was hired. A former federal prosecutor, Arnold & Porter partner and associate general counsel of Altria Group, the parent company of Philip Morris, Handal said the company’s criminal law and regulatory compliance issues meshed well with his experience. Coming in, Handal said, he was determined not to focus on the past. “I really had to look to the future and give the lawyers here and to some extent the rest of the company some hope that we were going to be a law-abiding, ethical company and that the law department was going to have something to do with that,”he said. Based in the Suffolk County, N.Y., hamlet of Islandia, Computer Associates is one of the world’s leading manufacturers of business management and data-storage software. It employs more than 15,000 people worldwide and about 3,000 on Long Island. Its stock is traded on the New York Stock Exchange. Last year, the U.S. Department of Justice and the U.S. Securities and Exchange Commission accused the company of overstating its earnings by hundreds of millions of dollars in fiscal year 2000. Individual prosecutions were leveled at Kumar, Woghin, Chief Financial Officer Ira Zar and Steven Richards, head of worldwide sales, among others. The company also became a target of shareholder derivative and class-action suits. On Sept. 22, Computer Associates entered into an 18-month deferred prosecution agreement with the Justice Department and the SEC. Intended to save it from the same fate that befell Enron Corp. and its accountant, Arthur Andersen, Computer Associates’ agreement with prosecutors obligated it to create a $225 million fund to compensate defrauded investors. It also mandated sweeping changes in the corporate hierarchy, implementation of new accountability systems, and the appointment of the independent examiner to monitor the company’s compliance with the terms of the deal. On March 16, Judge Glasser confirmed as examiner attorney Lee S. Richards III, a partner in the Manhattan firm of Richards Spears Kibbe & Orbe. Although Handal referred to the deferred prosecution pact as “the bible,” he said he did not feel burdened by its strictures. “It’s actually very helpful,” he said. “These were smart people at the government that wrote this. It really is a road-map to good governance.” SAGGING MORALE Handal said he came to Computer Associates with a mandate to make its law department “a respected partner in the business.” With the firing of Woghin and five other in-house lawyers, however, Handal said he inherited a dispirited department. Resurrecting its morale, he said, was his greatest challenge. He started with a new name. What was formerly the company’s “Legal Department”is now the “World-wide Law Department.” With the name change came a change in attitude, said Handal. The department “had not been very visible” under the old regime, he said. Within his first six weeks, Handal said he also reorganized the group, bringing all the company’s in-house attorneys into his sphere. His staff now includes about 54 lawyers. Additionally, Handal brought in two more former federal prosecutors to lead the team. One is the new deputy general counsel, Jeffrey Livingston, who worked with Handal in the U.S. Attorney’s Office for the Southern District of New York. Another is Gary R. Brown, who had been the chief criminal prosecutor on Long Island for Eastern District U.S. Attorney Roslynn R. Mauskopf. When Handal arrived at Computer Associates, its top brass impressed upon him the need to instill integrity not only in the lawyers but in the company itself. “We ought to be the conscience of the company,” Handal said. Drawing on his experience with Altria and with Arnold & Porter, Handal launched a pro bono project, which he said has been well received both by his staff and by the community at large. Computer Associates’ lawyers are now volunteering time with Suffolk County Legal Aid and Nassau/Suffolk Law Services, as well as on small individual cases. CLASS ACTION REVISITED Despite the reorganization of Computer Associates’ leadership and its legal department, the company has not been free from criticism. Five years ago, Texas investor Sam Wyly sold a business called Sterling Software to Computer Associates for $4 billion. Although his attorney could not say how large a stake he holds, the deal made Wyly a major shareholder in Computer Associates. Using that stake as a platform, Wyly was one of the first to challenge the company’s stated earnings and the compensation taken by its directors. He has filed a shareholders’ derivative suit and is fighting to reopen a settled class action, ostensibly so the company can recoup money paid to its former executives he says they did not deserve. William A. Brewer III of Dallas’ Bickel & Brewer, Wyly’s attorney, said that both he and his client are “shocked, startled disappointed and now non-plussed” over the failure of Computer Associates’ new leadership to pursue the monies paid to the old leadership. Through a spokeswoman, Handal said, “We are working with the government to recover ill-gotten gains, and believe the government is in the best position to accomplish this. We are providing the government with accounting and legal support and helping them in any way as it seeks to recover unjust enrichment.” GETTING UP TO SPEED Richards, the independent examiner, said in a telephone interview that he is only now getting up to speed on Computer Associates’ inner workings. With previous experience as an escrow agent in the Ivan Boesky insider trading scandal nearly 20 years ago, and then as a receiver in the SEC’s prosecution of the Kidder, Peabody brokerage house, Richards called this newest assignment “extremely interesting. “It’s a fascinating company,” he said. Richards said his job will entail sitting in on meetings, reviewing securities filings and working closely with Handal’s legal department. All the while he will be comparing the company’s internal reforms with those required under the deferred prosecution agreement. “It is my hope and expectation that the Computer Associates people would be ahead of me in terms of compliance with the deferred prosecution agreement,” he said. “If for some reason they are not, I am not only empowered but required to inform the government and also the court.” Richards is required to file interim reports with the Justice Department, the SEC and Computer Associates every three months. He is also required to submit a final report to Glasser at the end of his term. At that point, it is up to the Justice Department, the SEC and the court to decide whether the company has held up its end of the agreement, he said. Despite the early flurry of activity, Richards said it is too early to draw any conclusions. Washington attorney Kenneth R. Feinberg, who served as special master of the federal September 11 Victims Compensation Fund, is in charge of the $225 million Computer Associates restitution fund. Although a claims-eligibility formula has not yet been finalized, Feinberg said in a telephone interview last week that there could be more than 100,000 claimants. Feinberg, who was appointed by the U.S. Attorney’s Office for the Eastern District of New York, praised Handal as being “extremely helpful. “He has bent over backward to cooperate,” he said.

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