Software firm Peregrine Systems has said it will open a $1bn (£644m) law suit against its former auditor Andersen and that it has filed for bankruptcy protection.

The suit has been filed to argue that Arthur Andersen Germany, Arthur Andersen Worldwide SC and Daniel Stulac - the audit partner assigned to Peregrine - should have detected the problems which have led to Peregrine's downfall.

"Had they performed their audit responsibilities as the board and independent audit committee believed they were doing, the board could have taken prompt corrective action to deal with the situation in a timely and appropriate manner," chief executive Gary Greenfield said.

In May, the California-based software maker said it had booked inflated earnings to the tune of $100m during a three-year period.

Investors suffer

The revelation prompted the resignation of its senior executives and an investigation by the stock-market watchdog, Securities and Exchange Commission.

BMC has agreed to buy Peregrine's Remedy

Investors had already started dumping Peregrine shares when, in April, Peregrine fired Andersen and announced that its quarterly earnings report would be published late.

The stock was delisted from the Nasdaq market last month and is now virtually worthless, having traded at $80 at its peak in March 2000.

Bargain

The news of the bankruptcy protection filing came with an announcement that BMC Software was to buy Peregrine's Remedy Software unit for $350m.

Peregrine had paid $1.2bn for the business.

Last month, Peregrine sold businesses for a total $47.5m.

About half of Peregrine's 1,700-strong workforce has been axed, including 700 Remedy employees.

Peregrine's bankruptcy protection filing excludes its international subsidiaries and its customer service unit, Peregrine Solutions.