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By Paula Musich  |  Posted 2004-04-25 Print this article Print

Following Kumars exit, some customers are contacting CA for an explanation. Gabriel Zaldivar, network engineer for San Francisco-based Pacific Maritime Association, said he called the company as soon as he heard the news from another vendor.

Zaldivar said he believes CAs credibility has taken a hit. "If the [chief financial officer] is going to plead guilty because of accounting fraud, then I can start getting some doubts about CA," he said. His primary concern, however, is whether CA can continue its focus on the development of new software and innovation to combat high prices, he said.

"It will be a good chance for CA to prove that they can correct the path, and they can start doing things right again, and we wont see what happened to Enron or what is going on with Tyco [International Ltd.] at this time," Zaldivar said.

Zaldivar said he expects storage companies such as EMC Corp. and Veritas Software Corp. to make a pitch for PMAs technology business while CA deals with internal struggles.

Such competitive pressure comes at an especially inopportune time in CAs new user-focused efforts. "CA is at a critical juncture. They have begun to turn perceptions around, but that is tentative because of past behavior. They must continue down that path of changing perception," said Corey Ferengul, an analyst with Meta Group Inc., in Chicago. "Their survival is dependent on upselling to existing clients."

"Im just hoping that with these developments, and any more bad news for the company, that they dont get distracted," said Jay Levitan, technical services engineer at College of the Holy Cross, a CA user, in Worcester, Mass. "We still have confidence in them, but if things higher up [in the organization] change and that filters down, we might have to re-evaluate."

More bad news could come from personal or corporate indictments. The DOJ (through the U.S. Attorneys Office for the Eastern District of New York) and the SEC are conducting ongoing investigations of CA. Both agencies have brought actions against former employees on charges related to accounting fraud, but only the DOJ can prosecute criminal charges.

Earlier this month, former CA CFO Ira Zar pleaded guilty in the U.S. District Court for the Eastern District of New York to DOJ charges of securities fraud conspiracy, substantive securities fraud and obstruction-of-justice conspiracy. Zar faces a maximum 20-year sentence. At the same time, David Rivard and David Kaplan, two former senior financial executives, pleaded guilty to securities fraud conspiracy and obstruction-of-justice conspiracy. Each faces a maximum of 10 years in prison.

Also this month, the SEC filed civil actions against Zar, Rivard and Kaplan, charging them with accounting fraud. Without admitting or denying the charges, the three agreed to a permanent bar from acting as officers or directors of publicly held companies. The SEC is still pursuing the litigation, seeking monetary penalties and requiring Zar, Rivard and Kaplan to "disgorge their ill-gotten gains."

In January, the SEC filed charges against Lloyd Silverstein, a former senior vice president of finance at CA. Internal auditors are examining the companys books and are expected to announce their findings in the next few weeks.

Still, there are those who are reacting to the turmoil without missing a beat. "If you take the worst-case scenario and CA were to go away forever, someone would pick up eTrust Access Control, and wed continue to use it," said Sorrel Jakins, chief engineer for applications infrastructure at Brigham Young University, in Provo, Utah. "We dont see this as the end of the world, except for Sanjay."

Additional reporting by Dennis Fisher and Brian Fonseca

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