Computer Associates May Face SEC Investigation

Representatives at the Islandia, N.Y. firm said they received a "Wells Notice" from the commission, a procedural letter informing the company of the potential action. The company has a chance to respond to the SEC before the charges are filed.

According to CA, the SEC investigation centers around contracts that allegedly were printed with phony dates, in order to push revenue into quarters earlier than the ones in which deals had been signed. Most of the contracts in question were from the fiscal year that ended March 31, 2000, but the notice did not rule out accounting improprieties in other years.

News of the pending SEC action came as no surprise to CA. The company's own audit committee reached similar conclusions about the 2000 fiscal year in October, when it reported evidence of improperly dated contracts. As a result of that investigation, CA forced out Chief Financial Officer Ira Zar and two top finance executives.

Still, CA has come under criticism for corporate governance and accounting issues over the last few years. Shareholders bristled when the company awarded founder Charles Wang a $1 billion bonus in early 2000, and critics have suggested that the company's switch in October 2000 to a new method of accounting was designed to cloak a drop in revenue that top officials knew was coming.

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Company officials defended the new accounting method last month, saying that it has removed the incentive for financial wrongdoing by spreading revenue evenly in monthly increments over the life of a contract. Under the old method, touted by the company's ousted CFO, CA booked almost all of a job's revenue up-front.

CA executives could not be reached for official comment on Monday, but a company spokesman was quoted in the Wall Street Journal as saying that no current or former CA employees had received individual Wells forms. An SEC spokesman, citing organizational policy, declined to comment on the case.

Shares in CA stock were down nearly 5 percent Monday, closing at $27.99, down 13 cents.