O.C. Software Firm Attempts Damage Control : Shake-up: Platinum hires outside legal counsel, begins search for new executives and tries to reassure customers of its viability.

IRVINE —  Platinum Software Corp. fought for its life Tuesday after revealing a day earlier that its top four executives had resigned and that its financial statements for the past 15 months were flawed.

The company’s interim management team scrambled to begin the search for new executives and to persuade investors, employees, the news media and customers that Platinum, Orange County’s largest software company, can survive on the strength of its accounting software technology.

Anticipating shareholder lawsuits--the company’s stock lost 64% of its value Monday--the team also hired outside legal counsel and met with officials from the Securities and Exchange Commission, said Carmelo J. Santoro, a Platinum board member who took over Monday as acting chief executive.

Platinum’s stock rebounded slightly Tuesday to $4.125 a share, up 56.3 cents a share in Nasdaq trading. But stabilizing the stock price is only one of many challenges the company faces.

“There is a fine line to walk,” Santoro said. “We have a viable company, and we have to convince our customers and employees of that.”

Observers questioned the very survival of Platinum, which said it expects to revise its financial statements going back five quarters, could lose another $20 million in equity, and may be forced to lay off some of its 820 employees.

“It’s a tightrope,” said Steve DeLuca, analyst for Cruttenden & Co., an investment bank in Irvine. “They have to keep key employees like the traveling sales force in order to keep their customers and revenues up.”

In the fast-changing high-tech world, anything that distracts a company from constantly upgrading its product can severely damage its prospects, said Jeffrey Tarter, publisher of Softletter, a software industry newsletter based in Watertown, Mass.

“Being a little behind technically is not fatal, but if Platinum is out of the running for a year or two, that’s a problem,” Tarter said. “The real concern for the company would be a loss of confidence in its resellers’ market.”

Accounting software usually is developed in stages, which makes the stability of its manufacturer critical to distributors. “Resellers don’t want to leave clients with an orphan product line that cannot be expanded on,” Tarter said.

Other observers were struck by the irony of Platinum’s situation.

“How can an accounting software company have such a problem with accounting?” asked one former accounting executive. “Someone was asleep.”

Overaggressive accounting practices at Platinum were revealed in a routine internal investigation of a shareholder lawsuit alleging that the company had violated securities laws, including overstating its revenue by booking software license sales before they actually closed, Santoro said. He said he anticipates an SEC investigation as a result.

Kelly Bowers, a spokesman for the SEC, would not comment Tuesday on whether the agency is investigating Platinum or plans to do so.

Shareholders, however, will likely file lawsuits seeking to recover the money lost in Monday’s stock plunge, the company and analysts said.

“I have to assume there are a lot of angry shareholders out there, judging by the calls we are getting,” Platinum spokesman David Downing said Tuesday.

The company has hired the Washington law firm of Wilmer, Cutler & Pickering to handle its legal affairs. Platinum’s corporate directors and officers have liability insurance to help pay legal costs, Santoro said. But insurers often refuse to pay if the company is found to have defrauded investors.

The biggest potential blow to financial stability, though, would be if customers stop buying Platinum’s software.

“Obviously our software customers are concerned because each software sale creates a relationship, and they’re concerned about the viability of the company,” Downing said. “As far as we can tell, we haven’t had cancellations and don’t appear to be losing customers right now.”

Kevin Riegelsberger, who gave up his title as executive vice president Monday but is staying on as an employee, said, “It’s going to be a long-term process with the customers.”

Restoring that customer confidence is crucial if Platinum is to survive, said David Samuels, former chief executive of State of the Art Inc., an Irvine-based competitor.

“If you put yourself in the shoes of a corporate information systems officer,” Samuels asked, “would you take a gamble with Platinum?”

Times staff writers Susan Christian, James S. Granelli and James M. Gomez contributed to this report.