FBI probes CA accounting
Reports: Authorities look into how No. 4 software maker reports revenue, profit.
February 20, 2002: 12:16 p.m. ET
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NEW YORK (CNN/Money) - Computer Associates shares tumbled Wednesday after two newspapers reported that the FBI and the Justice Department's New York office had launched a preliminary investigation into the accounting practices of the computer software company.
A former CA employee told Melville, N.Y.-based Newsday that the FBI contacted him several weeks ago and asked him questions about the way Computer Associates (CA: down $4.50 to $20.81, Research, Estimates) reports its revenue.
Meanwhile, the New York Times reported that two people close to the investigation told the paper that federal prosecutors had begun inquiring about whether the company deliberately overstated its profits to inflate its stock price and benefit select executives.
CA released a statement Wednesday saying it had not been contacted by the authorities.
Specifically, authorities are looking into whether the Islandia, N.Y.-based company complied with a Securities and Exchange Commission requirement to separately report the revenue received from software sales and that received from service fees, according to the Newsday report.
The involvement of the FBI implies that any potential case may involve criminal fraud by the world's No. 4 software maker. However, Newsday said its sources stressed that the probe is in its initial stages and that there's no firm evidence anything illegal occurred.
"We have not been contacted by the authorities regarding any investigation and do not know what, if anything, is being investigated. The reporting of our financial results has always been in accordance with all applicable accounting principles," the CA statement said.
The FBI and the U.S attorney's office for the Eastern District of New York both declined to comment.
The company's accounting methods came under scrutiny in 2000 after the maker of mainframe and other software changed its business model to report all revenue on a month-to-month basis instead of upfront, according to the Newsday report.
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Texas tycoon Sam Wyly called the company's practices "phony accounting" when he launched a proxy battle for CA last year.
CA is the latest company to become embroiled in accounting concerns after the collapse of energy trader Enron. IBM and PNC Financial Services Group were among the companies whose shares got hit Tuesday by talk about their accounting practices. 
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