Race to Reform

CFO Bob Davis and his cohorts have nine months left to clean up Computer Associates.

Alix Nyberg Stuart is senior writer at CFO.

Test Case for DPAs

CA was one of the first companies to be allowed to restructure under a deferred-prosecution agreement (DPA). Since CA’s DPA in 2004, about a dozen more companies have cut similar deals, including the accounting firm KPMG and insurance giant American International Group Inc. Under a DPA, the feds achieve a kind of coerced cooperation. To avoid prosecution, companies admit wrongdoing, promise reform, and help prosecutors convict the insiders responsible for the illegal activity. As one of the first to negotiate a DPA, CA is being watched closely by the financial and legal communities.

DPAs could “achieve a host of beneficial results — admission of guilt, restitution for victims, a disciplined process of internal reform — without causing the adverse consequences that come along with a full prosecution and conviction,” says David Pitofsky. Pitofsky was the lead federal prosecutor who helped broker the deal with CA, and is now a partner in the New York office of law firm Goodwin Procter LLP. “The consequences of failing are horrific for a company,” says Pitofsky. “They’ll move heaven and earth to fix problems” reported by the independent examiner. For CA, the stakes are high because it is one of the most prominent companies to negotiate such a deal. Federal regulators will use the company as a test of the DPA’s effectiveness. — A.N.S.

Some other companies that have avoided trials thanks to deferred-prosecution agreements.
Date Brokered Company Key Terms and Deadline
3/04 WorldCom (now MCI) Accused of a massive accounting fraud, MCI will pay shareholders $750 million in 2006, and must add 1,600 jobs to its Oklahoma workforce by 2014.
4/04 Adelphia Accused of a massive fraud, Adelphia agreed to pay shareholders $715 million when it emerges from Chapter 11.
11/04 AIG Accused of fraud, AIG agreed to pay shareholders $46 million and $80 million in fines by December 2005.
12/04 Time Warner Accused of fraud, the AOL unit must pay its former shareholders $150 million and $60 million in fines by December 2006.
1/05 AEP Accused of manipulating energy markets, AEP will pay $81 million in fines by March 2006.
1/05 Monsanto Accused of bribing foreign officials, Monsanto will pay $1 million in fines and retain an independent compliance expert to boost controls by January 2008.
3/05 Micrus Accused of bribing foreign doctors to tout its medical devices, Micrus must pay $450,000 and strengthen internal controls by March 2007.
6/05 Bristol-Myers Squibb Accused of fraud and conspiracy, BMS must pay shareholders $839 million and endow a chair in ethics at Seton Hall Law School by June 2007.
8/05 KPMG Accused of selling fraudulent tax shelters, KPMG paid $456 million in fines and restitution, and must strengthen controls by December 2006.
Sources: Department of Justice; companies


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