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.
