The company, based in Islandia, N.Y., declined to comment.

Deferred prosecution, also known as a "pretrial diversion," would give prosecutors a way to monitor, and coax reform of, the company's behavior without dealing the damaging blow of criminal charges. Deferred prosecution is frequently used by state and local prosecutors dealing with first-time offenders accused of minor crimes. Typically, prosecutors agree to suspend criminal proceedings for a fixed period of time, after which charges are dropped or dismissed if the offender lives up to the terms of an agreement -- which usually requires at least that he doesn't get in any more trouble with the law.

But deferred prosecution is "very unusual" in prosecutions of corporations, says Anton R. Valukas, a former U.S. attorney who is now a lawyer at Jenner & Block in Chicago. "It is an unusual resolution -- a creative resolution," he said. "They have an opportunity to earn their way out of being charged."

There are few major precedents: In 1994, the Justice Department and Prudential Securities Inc. agreed to a three-year deferred prosecution, as well as fines and restitution, to end a securities-fraud investigation. The government deferred prosecution of PNC Financial Services Group Inc. last year in a resolution of an accounting-fraud investigation, and reached a similar arrangement last year with Banco Popular de Puerto Rico in a money-laundering case.

A deferred prosecution is far from an end to liability, lawyers note. Prosecutors have latitude to impose strict conditions -- such as mandating structural or procedural changes -- and to decide whether those conditions are being met, says Steven Chanenson, an associate professor of law at Villanova University School of Law and a former federal prosecutor. He also says a deferred prosecution can be used to insure the company's cooperating in continuing investigations of individuals.

CA would have a "sword of Damocles hanging over its head" with a deferred prosecution, says Mark Pearlstein, a lawyer at McDermott, Will & Emery in Boston. "If the corporation were to screw up, the prosecution could be revived."

In addition to the four executives who have already pleaded guilty, three other top executives -- including former Chief Executive Sanjay Kumar -- were pushed out in the wake of the accounting admissions. Mr. Kumar was president and chief operating officer during the period of the fraud alleged by prosecutors, and people close to the case have said his conduct is being examined. He hasn't been charged with any wrongdoing and has said he believes his actions were proper.

Prosecutors have broad discretion to indict corporations, but the Justice Department sets guidelines, laid out in a document known as the Thompson memo.

Corporate defendants are viewed harshly if the conduct was pervasive, the company has a past history of misdeeds or the corporation protected employees involved, the memo says. Those factors are mitigated by cooperation, "timely and voluntary disclosure" and the replacement of executives responsible for the activity. Prosecutors also weigh "collateral consequences" to innocent parties, such as shareholders who might see their investments suffer and employees far removed from the actions of the fraud who might lose their jobs.

Weighing against a deferred prosecution in the CA case is that the accounting fraud took place over multiple years, and prosecutors and cooperating former executives have alleged that it was widespread -- known to scores of finance employees and perhaps many more sales executives. CA is also at risk because it initially had vigorously denied wrongdoing, aggressively countered media reports of trouble and publicly insisted that its accounting was above board.

For example, in September 2002, the company reported that an examination by PricewaterhouseCoopers of two quarters in 1997 and 1998 found no accounting problems. Former executives pleading guilty earlier this year said in court papers that the fraudulent accounting practices stretched back to that era.

On the other hand, the company's board, after doing little to help uncover the fraud for more than a year as the federal investigation progressed, eventually conducted a fresh internal probe and fired employees. Much of the senior management has been replaced, and CA has put in place compliance programs. CA has about 15,000 workers and is a major employer on Long Island.

Write to Charles Forelle at charles.forelle@wsj.com¹