Colorful Dallas-based software entrepreneur Sam Wyly, who headed Sterling Software Inc. when it was sold to Computer Associates International Inc. in March 2000 in a $4 billion transaction, has filed an $80 million lawsuit in state district court in Dallas against Ernst & Young LLP, which had audit relationships with both companies. The lawsuit is the latest in a deluge of lawsuits that have been filed over the past year against the Big Four auditing firms, and is only the latest in a string of lawsuits that Mr. Wyly has filed over his disatisfaction with the Computer Associates management and board.
In his latest lawsuit, Mr. Wyly contends that he relied on Ernst & Young’s audit of Computer Associates’ books for fiscal 1999 in making his decision to sell his company in return for Computer Associates stock. Unfortunately, CA’s shares fell 12% in one day about a month later when the company announced that it was delaying its reporting of year-end earnings. Subsequently, the CA stock declined even further when CA failed to fulfill its earnings forecast.
Or course, CA is no stranger to accounting scandals. A $2.2 billion accounting scandal led to criminal indictment of its former chief executive, Sanjay Kumar, late last year along with the resignations and indictments of several other top officials. Although Mr. Kumar has pleaded not guilty to the charges, CA has admitted to backdating contracts and keeping its books open days after they were supposed to be closed on the last day of several quarters in order to book extra revenue.