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BearingPoint Warns of Continued Turmoil, Acknowledges Subpoena

BearingPoint warned that even if it does implement changes, "it seems clear that there will be insufficient time" for the company's independent accountants to conclude that the new procedures are working and sign off on its financials.

BearingPoint also said it expects to take a restructuring charge of $57 million to $67 million in the first half of 2005, as it eliminates office space. The firm also said it is evaluating whether to reduce or sell some of its operations in other countries.

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The company declined to comment on where office space is being eliminated or in which countries it might reduce operations.

There are "just a lot of issues here that need some strong attention paid to them," said Joseph A. Vafi, an analyst with Jefferies & Co.

In November, Randolph C. Blazer resigned abruptly as BearingPoint's chief executive and Chief Financial Officer Robert S. Falcone announced that he would retire early.

Roderick C. McGeary, who previously was co-chief executive with Blazer, is now the interim chief executive and has said he is a candidate for the permanent position. He has promised to focus on revamping -- or eliminating -- the company's trouble spots.

The company did not detail in its filing the nature of the grand jury investigation.

It also said it received a subpoena from the SEC and a request for documents from the U.S. attorney's office in the Southern District of California, which is pursuing a case against executives of Peregrine Systems Inc., a company that overstated its revenue by $509 million from 1999 to 2001, according to the SEC. KPMG Consulting, the predecessor company to BearingPoint, was a reseller of Peregrine's software during that time.

One former KPMG employee pleaded guilty last month to signing almost $25 million worth of contracts with Peregrine that he knew to be faulty. Peregrine boosted quarterly revenue by recording sales with complicit partners, but never collected on the bills. The SEC complaint said many of the deals were with the consulting arm of an accounting firm, later revealed to be KPMG.

The SEC found that the consulting firm ultimately became "Peregrine's 'go-to' reseller when it needed revenue to make quarterly forecasts."

BearingPoint also is a defendant in several shareholder lawsuits related to Peregrine, and warned shareholders that the company may face liability "but in amounts that are not material to our overall financial condition."

"This news . . . raises concerns with respect to the most profitable and arguably stable part of BearingPoint's business portfolio," said David M. Garrity, an analyst with Caris & Co. But, he added, "I think it's about perception. It's not necessarily a big deal."


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