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McAfee Tangles With SEC Over Securities Fraud
John Stith
Staff Writer
2006-01-05
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McAfee Inc, one of the top names in the security software industry, recently worked out a deal with the Securities and Exchange Commission (SEC) regarding securities fraud. While McAfee agreed to pay penalties, they were able to walk away without admitting guilt.
 | | McAfee Tangles With SEC |  |
A hat tip goes to Ted Richardson at his blog for the heads up on this story. According to the media release from the SEC, the complaint charges that, from the second quarter of 1998 through 2000, McAfee misled investors when it overstated its revenue and earnings by hundreds of million of dollars. The exact amount was $622 million and that for 1998 alone they jacked up the numbers by $562 million, a 131% misstatement.
The charges also state McAfee's scheme fell apart in December of 2000 and they missed quarterly earnings by $190 million, slashing $1 billion from McAfee's market capitalization.
The outcome is McAfee consented, neither confirming nor denying the charges, to the entry of a court order "enjoining it from violating the antifraud, books and records, internal controls, and periodic reporting provisions of the federal securities laws." There's a $50 million civil penalty to go to investors and McAfee has agreed to hire and outside entity to go over its accounting methods.
"This settlement takes into account both the underlying misconduct and the resulting investor harm, as well as the significant benefit that accrued to McAfee from having artificially inflated the price of its stock and using it to acquire other companies, capitalizing on the artificial value McAfee had created through its fraud," said Linda Chatman Thomsen, the Director of the SEC's Division of Enforcement.
"The company's channel-stuffing and use of manipulative accounting artifices warrants a severe civil sanction that will act as a deterrent for other public companies and provide a source of funds that can be distributed to injured McAfee investors."
This is another in a long string of accounting fraud that seems to have plagued the business world for some time. And while this issue seems to keep coming, often, all the charges are merely settled and many walk away. A point of note in the release from the SEC also suggested some executives at McAfee may be in real trouble as well:
Previously, the Commission has sued former McAfee chief financial officer Prabhat Goyal and former McAfee controller Terry Davis for their roles in the fraudulent accounting at McAfee. Both of those actions have been stayed by the Court pending the resolution of criminal proceedings that have been brought by the United States Attorney's Office for the Northern District of California against Goyal and Davis.
About the Author:
John is a staff writer for SecurityProNews covering cyber security.
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