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Friday, 22 February, 2002, 18:10 GMT
Software giant admits SEC probe
'Enronitis' has hit nerves on Wall Street
Computer Associates, the US software heavyweight that has become the latest victim of Enron-related investor jitters, has acknowledged that it is being probed by the US authorities.


The company has sufficient cash flow to fund its daily operations

Computer Associates
Chief executive Sanjay Kumar said preliminary investigations have been launched into its accounting procedures by both federal prosecutors and the Securities and Exchange Commission.

"We're very eager to provide [investigators] with whatever information they need to dispel this cloud that's hanging over us," Mr Kumar said, denying any wrongdoing.

Nevertheless, the admission - along with a downgrade by the investment bank Salomon Smith Barney - hit the company's share price hard.

In New York trading, nearly a fifth of the company's value was sliced off by lunchtime.

Many of the traders have become accustomed to such events, however, given that CA had already lost 58% of its value by the close of trading on Thursday.

Debt worries

Traders were also concerned after the credit rating agency Moody's Investors Service placed Computer Associates' debt on review with a view to a downgrade.

Earlier, Computer Associates said it had plenty of money to pay its short-term debt.

In a strongly worded statement, it said recent media reports of its parlous finances were untrue.

Computer Associates' shares have more than halved in value since the middle of January, as investors have become nervous that the slippery accounting used by failed energy trader Enron could be widespread.

There are worries over Computer Associates' method of accounting for revenue from software and from related services, which are supposed to be clearly distinct under US rules.

Press pressure mounts

Friday marked the second day this week that Computer Associates had to respond to media reports.

Initially, it denied reports that it had had any approaches from federal authorities over its accounting.

CA chief executive Sanjay Kumar is keen to calm investors
It then issued a statement relating to a story on the Bloomberg news agency, which alleged that Computer Associates had been forced to draw on its line of credit to pay back its short-term commercial paper obligations.

"Contrary to a Bloomberg news report filed today, Computer Associates has not drawn on its credit lines to pay down its commercial paper obligations," the firm said.

"CA's outstanding commercial paper obligations can be covered by cash on hand as well as cash generated from operations and the company has sufficient cash flow to fund its daily operations."

Later in the day, Mr Kumar responded to a report in New York Times which reported that the company used "pro forma" accounting methods "that makes its profits and sales seem much larger than under standard accounting rules".

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

Enronitis spreads

Given the level of anxiety over Computer Associates, it seems far from certain that the latest responses will end the share-price slide.

It is already clear, however, that so-called Enronitis is having a lasting impact.

Fresh fears over governance at hi-tech companies sent the Nasdaq Composite share index down by more than 3% on Thursday.

Tech firms, many of which saw sizzling earnings growth during the 1990s, are coming in for special punishment, because they are seen as likely users of "aggressive accounting", the semi-legitimate practice of using book-keeping tricks to maximise apparent profits.

See also:

22 Feb 02 | Business
JP Morgan faces Enron deal inquiry
21 Feb 02 | Business
Tech fears cause US stock slump
20 Feb 02 | Business
Enronitis hits US software giant
30 Jan 02 | Business
Tyco hit by 'Enron ripple'
14 Feb 02 | Business
Concerns mount over Tyco
08 Feb 02 | Business
Markets suffer from 'Enronitis'
04 Feb 02 | Business
GE engulfed in 'Enron ripple'
25 Jan 02 | Business
Enron auditors quizzed
17 Jan 02 | Business
Enron sacks Andersen as auditor
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