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February 20, 2002

Federal Inquiry Into Computer Associates


Federal 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 investigation said.

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 be proper.

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 profits.

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.


Copyright 2004 The New York Times Company


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