Network Associates under investigation by SEC

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26 March 2002 Network Associates has announced today that the Securities and Exchange Commission (SEC), the US stock market watchdog, has started a formal investigation into its accounting practices.

This is only the latest in a series of official probes into corporate financial reporting in the US, where these issues have come to the fore in the wake of the collapse of energy group Enron.

Network Associates said that the investigation relates chiefly to its accounts of fiscal 2000. The security software vendor played down the possible impact of the probe, asserting that “the accounting was proper”. The Santa Clara, California-based company was the subject of an informal investigation by the SEC in 2000 and said that it does not know why the SEC would launch a formal probe at this stage.

Since it posted an unexpected loss at the end of 2000 and three senior managers resigned, Network Associates has put an end to a controversial accounting practice whereby revenue was booked when software was sold to distributors – instead of when it was sold to the end-user. Many companies in the IT industry still follow this policy, which makes them open to accusations of ‘channel stuffing’, a charge recently levelled at Hewlett-Packard.

Network Associates said that it will postpone its offer to re-acquire the 24% of anti-virus software spin-out that it does not already own for the time being. Yesterday, McAfee unexpectedly rejected as insufficient the share-swap offer made by Network Associates, valued at $205 million (€234m).

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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