McAfee Inc., a manufacturer of computer security software, agreed to pay a $50 million civil penalty to settle securities fraud charges brought by the Securities and Exchange Commission.
McAfee, formerly Network Associates Inc., neither admitted nor denied the allegations brought by the SEC. The agency had alleged that between 1998 and 2000, McAfee misled investors by overstating its revenue and earnings by hundreds of millions of dollars. According to the SEC, for 1998 alone, McAfee overstated revenues by $562 million, and when the company announced in December 2000 that it would miss its quarterly revenue projection by $190 million, the news slashed over $1 billion from McAfee's market capitalization.
The SEC requested it be allowed to distribute the $50 million fine to harmed McAfee investors. McAfee also agreed to appoint an independent consultant to examine the company's internal accounting controls and revenue recognition practices. A judge must approve the agreement.
The SEC's original complaint also accused McAfee of engaging in channel-stuffing, and secretly paying distributors millions of dollars to hold the excess inventory. In other instances, McAfee used an undisclosed, wholly owned subsidiary, Net Tools Inc., to repurchase inventory that McAfee had oversold to its distributors.The SEC has also sued former McAfee chief financial officer Prabhat Goyal and former McAfee controller Terry Davis for their roles in the fraudulent accounting. Both of those actions have been stayed until criminal charges brought by the U.S. Attorney's Office against the men are resolved.
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