Shares Continue to Drop As CA Confirms Federal Inquiry

Computer Associates International

"Through our outside legal counsel, we have contacted the U.S. Attorney's Office and have contacted the [Securities and Exchange Commission, and they have confirmed that they have some form of preliminary inquiry under way," said Sanjay Kumar, president and CEO of Islandia-based CA, in a conference call. "We have asked to meet with both organizations and have expressed our desire to cooperate with them fully. Obviously, we're still trying to determine the full scope of those inquires," he said.

CA shares fell almost 22 percent Friday morning, trading down $4.09 to $14.81. The company's stock price has been steadily dropping since Wednesday morning when published reports said the vendor's accounting practices are under federal investigation. Shares had closed at $25.31 Tuesday.

Solution providers this week said they do not expect sales of CA products to dip as a result of the inquiry.

"This is not the first time this has happened to a software company, and it's certainly not [going to be the last time," said Javed Matin, CEO of Myriad Solutions, a Silver Spring, Md.-based solution provider. "It's a storm in a teacup," he said.

Kumar said CA does not know the topic of the inquiry and has not yet been asked to provide any information or documents to the agencies.

"We're very eager to provide them with whatever information they need to dispel this cloud that's hanging over us, and we would ask that they do it in an expeditious manner because clearly our shareholders are being impacted by this process," Kumar said.

The New York Times and Long Island newspaper Newsday this week reported that the agencies were looking into whether CA had improperly recognized revenue.

"We flatly reject insinuations that CA in any way used inappropriate accounting or that such accounting was used to boost our stock price," Kumar said, referring to the reports.

The U.S. Attorney's office has declined to comment.

CA also disclosed that it withdrew $600 million from one credit line to pay debt on another. The move was necessitated by the cancellation of a planned $1 billion bond offering, the proceeds of which were supposed to be used to pay down the debt, executives said.

The bond offering was cancelled after Moody's Investors Service said it planned to review CA's debt rating.