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Computer Associates Brushes Off New Questions

After spending most of the year answering accounting questions about how it met sales targets in order to pay top executives' bonuses, software and IT consultancy Computer Associates is fending off a new round of accounting questions.

But this time, investors and analysts appear to be shrugging off the news.

Stories in Monday's The Wall Street Journal and also on financial wire service Reuters said federal investigators had widened their ongoing probe of the company's accounting practices.

For months now, the Securities and Exchange Commission and U.S. Attorney's office have been looking into how the Islandia, New York-based Computer Associates booked revenue in relation to $1.1 billion in compensation for executives. Their bonuses were tied to the company's sales targets and stock price.

The Journal and Reuters stories on Monday sourced former employees who alleged that Computer Associates used customer contracts and free software as part of a scheme to shift revenue during 1999 and 2000, the tail end of the Internet boom. The procedures, the stories said, could be against accounting rules. The employees also have lawsuits pending against the company regarding harassment charges.

But investors continued to brush off the accounts, leaving shares of Computer Associates little changed Monday and slightly off by less than 1 percent to $14.96 during Tuesday's session, during a down day in market activity.

Computer Associates said it has not been advised by the federal regulators or investigators that ongoing probes of the company's finances have been expanded.

"The story in the Wall Street Journal is largely based on the allegations and speculation of a few former employees, who have brought their complaints to the government," Computer Associates said in a statement.

"They are free to do all the guessing they want, but, as we said last week, Computer Associates has not been advised by either the SEC or the U.S. Attorney's Office of any recent change in the status of the inquiry into the company's accounting practices."

The company's disclosure of federal probes into its finances have already been factored into its price, said Kimberly Caughey, an equity analyst with Pittsburgh-based brokerage Parker/Hunter.

"The bigger issue that needs to be resolved is did it manipulate its figures in order to give the top three executives their shot at a $1.1 billion payoff," she said. "That's the thing that needs to be answered." Caughey, like most analysts that cover the company, did not downgrade her positive rating on the company after the reports appeared.

Banc of America Securities, meanwhile, recently reported that Computer Associates' mainframe business continues to hold up in a weak IT spending environment. It also noted that Europe continues to be a "pocket of strength" for the company. During the third quarter its Unicenter security back-up sales were up by 24 percent compared to the quarter before, and its bookings for security and storage, "while not spectacular, were stable" and are consistent with its peers in the industry.

Still, despite how the company is performing in a sluggish IT spending environment, analysts say the probes continue to hang over the company's outlook.

On Saturday, The New York Times reported that the investigation into the company's accounting had grown more intense after prosecutors in Brooklyn issued subpoenas to former employees and customers.