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 McAfee is “very happy” to have concluded the

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

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.

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