February 20, 2002
Federal Inquiry Into Computer Associates
By ALEX BERENSON
prosecutors in Brooklyn have opened a preliminary inquiry into whether
Computer Associates deliberately overstated its profits to inflate its stock
price and enrich its senior executives, two people close to the
The inquiry comes in the wake of the collapse of Enron, which has caused
the Securities and Exchange Commission and prosecutors to put new scrutiny
on companies that use unusual accounting practices.
Since October 2000, Computer Associates, a giant software company based
in Islandia, N.Y., has reported its financial results using a nonstandard
``pro forma'' accounting practice that makes its profits and sales seem much
larger than under standard accounting rules.
The company also continues to report its results under regular accounting
rules. But because of a change Computer Associates made in its contracts
when it began using pro forma accounting, the standard results are
essentially meaningless for investors.
Former employees have said that Computer Associates began using pro forma
accounting because it had run out of ways to inflate its results under
standard accounting rules and had to find a new method. The company has
denied those accusations and says that its accounting was and continues to
The preliminary inquiry is being conducted by David Pitofsky, an
assistant United States attorney for the Eastern District of New York, which
oversees Long Island. Mr. Pitofsky could not be reached for comment, but a
person whom he contacted said that he had asked about the company's sales
and accounting practices and whether it had overstated its sales and
The person said Mr. Pitofsky appeared interested in setting up interviews
with the F.B.I. for former Computer Associates employees but did not
indicate whether he planned to issue subpoenas.
The company could not be reached for comment.