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McAfee Settles SEC Score

McAfee will pay $50 million to settle Securities and Exchange Commission (SEC) charges related to the software maker's finances dating back to 2000.

McAfee, which makes intrusion prevention applications that find bugs or viruses before they can do damage, agreed to pay a $50 million penalty as authorized under the Sarbanes-Oxley Act.

The Santa Clara, Calif., company must also appoint an SEC-approved independent consultant who will within six months review the company's practices regarding revenue and expense recognition; its internal accounting and financial reporting controls; and its internal auditing policies and practices.

McAfee will also have to expand its pre-existing Ethics First program to permit customers, distributors, resellers and suppliers to report suspected unlawful or unethical behavior through its anonymous ethics hotline.

As part of the settlement, McAfee has also agreed, without admitting or denying any wrongdoing, not to violate the future provisions of the United States securities laws.

Kent Roberts, the executive vice president and general counsel of McAfee, told internetnews.com McAfee is "very happy" to have concluded the settlement.

Roberts said McAfee's board had planned on changing the tone of the company even before the SEC came calling, which is why it brought in CEO and board Chairman George Samenuk in January 2001 to improve the corporate culture of ethics and compliance.

The case dates back to March 2002 when the SEC informed the company, then called Network Associates, that it had begun a formal investigation of its results in the year 2000 and prior periods.

The probe centered on the software maker's accounting practices during fiscal year 2000 when a $120 million sales shortfall and shareholder lawsuits over its revenue recognition policy forced a top-level management shakeup.

The lawsuits accused the vendor of "channel stuffing," a practice in which revenues were recognized for products sold into the distribution channel, which were subject to return.

To complicate matters, the SEC's probe came shortly after Network Associates moved to tuck in the remaining quarter of its McAfee subsidiary.

That deal was postponed a few times because of the alleged accounting improprieties, but the SEC ultimately blessed the deal, which closed in September 2002.

Network Associates formally took the McAfee name in 2004.