Audit probe fuels Wall Street nerves

Wall Street was already in a bearish mood

Federal authorities are investigating whether software giant Computer Associates inflated its revenue by more than $500m in 1998-99 to enrich senior management, the Wall Street Journal has reported.

Computer Associates is one of a string of firms - mainly in hi-tech sectors - to have come under scrutiny in the tougher regulatory mood following the collapse of energy trader Enron.

Last week, the firm admitted that third parties had been subpoenaed as part of an investigation into its accounts, which is being conducted jointly by the Securities and Exchanges Commission and the US Justice Department.

The company's shares, which have already lost two-thirds of their value this year, fell by another 4%, contributing to a nervous day on Wall Street.

The tech-heavy Nasdaq Composite index closed down almost 2.3% at 1,702 points, while the broader Dow Jones Industrial Average lost some 1.2% to 10,230.

Money for nothing

According to the Wall Street Journal, the probe is focusing on whether Computer Associates inflated revenue to boost its share price.

The shares, in turn, were tied to a $1.1bn compensation package awarded in 1998 to then-chairman and chief executive officer Charles Wang, then-president and chief operating officer Sanjay Kumar, and Russell Artzt, executive vice president and co-founder.

The compensation package is currently the subject of an investor legal case, alleging that it dilutes shareholder value.

The company has refused to comment on the case.

Gloomy mood

The rumours swirling around Computer Associates put further pressure on a Wall Street already inclined to bearishness.

Last week, US shares soared for five successive days, prompting investors to take profits on Monday.

Investors were also troubled by warnings from the US government that further serious terrorist attacks were a possibility.