RealTime IT News

Network Associates' McAfee Bid Stung by SEC

One day after its $208 million bid to acquire McAfee.com was rejected as "insufficient," security software firm Network Associates got more bad news in the form of a formal accounting probe from the Securities and Exchange Commission (SEC).

Network Associates, whose stock plunged on the news, said federal securities regulators have launched a "Formal Order of Private Investigation" into accounting practices, a move that effectively derails the planned purchase of the 25 percent stake of McAfee.com that it does not already own.

"We believe the inquiry relates to accounting issues that predate the current management team's arrival in early 2001. The Company has reviewed its accounting for fiscal 2000 with its outside auditors and continues to believe that the accounting was proper," Network Associates said.

In a conference call with investors, Network Associates chairman and CEO George Samenuk said the company would cooperate fully with the SEC staff in order to bring the inquiry to a resolution as early as possible.

Samenuk, who assumed the CEO role at the Santa Clara, Calif.-based firm in January 2001, insisted the SEC probe was limited to accounting practices during fiscal year 2000. Samenuk, who took control of firm after a huge $120 million revenue shortfall in December 2000 forced the resignation of three top executives, said Network Associates was first contacted informally by the SEC after the revenue shortfall was announced.

Based on information from the SEC's investigators, he said the investigation appears to be focused on accounting procedures leading up to the December 2000 revenue shortfall announcement.

"We continue to believe the accounting procedures (under investigation) was proper. We intend to fully cooperate to bring this to a quick resolution, but I want to make it clear that the period under investigation predates our arrival," Samenuk declared.

"I have gone to great lengths since joining this company to build credibility with our stockholders. We are going to resolve this in a timely manner."

He said the company was first notified of the formal order of investigation from the SEC last Friday. "Friday's information (from the SEC) was extremely limited. Yesterday, we got more information and we decided to go public with this as early as possible."

Samenuk added: "We do not expect this to have any effect on our day to date operations, our current business or our future growth opportunities."

In light of the SEC probe, he said Network Associates would postpone the commencement of the share exchange offer for McAfee.com, which was already rejected as "financially inadequate" by McAfee.

Samenuk said Network Associates would revisit the offer once the cloud of the SEC probe is lifted. "At that time, we'd have to review our offer based on the stock prices of both companies."

He declined comment on a deadline for the resolution of the investigation, noting that the SEC probe does not have a time frame. "We have no control over the timing of the resolution. We do intend to be cooperative and get all the information they need."

Despite the company's firm belief that the probe is exclusively focused on fiscal year 2000, Samenuk said the formal order of investigation would allow the SEC "to look at all periods" of the accounting at Network Associates.

He said the probe was strictly related to Network Associates and did not include McAfee.com. "That (McAfee) is a separately traded public company, with its own accountants and legal staff."

Samenuk declined to speculate on the extent of penalties the company would face if wrongdoing were found.

Network Associates sells anti-virus, network management and help desk software through three product groups: McAfee Security, Sniffer Technologies and Magic Solutions.