McAfee Charged with Fraud by the SEC

Here is an interesting release by the SEC:

"Washington, D.C., Jan. 4, 2006 — The Securities and Exchange Commission today filed securities fraud charges against McAfee, Inc., formerly known as Network Associates, Inc., a Santa Clara, California-based manufacturer and supplier of computer security and antivirus tools. The Commission’s complaint alleges that, from the second quarter of 1998 through 2000, McAfee misled investors when it engaged in a fraudulent scheme to overstate its revenue and earnings by hundreds of millions of dollars. The complaint specifically alleges that, during the period 1998 through 2000, McAfee inflated its cumulative net revenues by $622 million and that, for 1998 alone, McAfee overstated revenues by $562 million, a misstatement of 131 percent. When the scheme began to unravel and McAfee 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."

For the full release: SEC Charges McAfee, Inc. with Accounting Fraud; McAfee Agrees to Settle and Pay a $50 Million Penalty.

Note that:

"Previously, the Commission has sued former McAfee chief financial officer Prabhat Goyal and former McAfee controller Terry Davis for their roles in the fraudulent accounting at McAfee. Both of those actions have been stayed by the Court pending the resolution of criminal proceedings that have been brought by the United States Attorney’s Office for the Northern District of California against Goyal and Davis."

There has been a lot of settling of fraud charges against corporations lately. This one could very well cost McAfee 50 million. Private individuals (Company Officers) haven't fared so well and many have, or are going to jail for their misdeeds. It will be interesting to see what the outcome of this one is.

Here is a previous post about someone, who didn't fare so well after his trial: Farewell Mr. Ebbers (Former WorldCom CEO).