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SEC Probes Network Associates' Books

The hits just keep coming for Network Associates. The feds are looking into its past accounting practices.
Dec. 26, 2000, was a rough one for security-software vendor Network Associates Inc. That was the day the company said it would miss its sales projections by $120 million; lose its CEO, its president, and its CFO; and change the way the company recognizes revenue. The news caught the attention of investors, customers, and, ultimately, the SEC.

Now, Network Associates CEO George Samenuk says the Securities and Exchange Commission is probing his company's accounting practices. Speaking during a conference call Tuesday, Samenuk said the investigation has forced him to postpone Network Associates' bid to increase its stake in McAfee.com Corp. The firm wants to boost its ownership from 75% to 90%.

Samenuk, who became CEO in January 2001, says he doesn't know exactly what the government is looking into, but he says he believes the probe involves activity before the December 2000 announcements. Samenuk says PricewaterhouseCoopers examined the financial statements for 2000 and has said it's confident the investigation will be resolved in Network Associates' favor. "We continue to believe that the accounting was proper," Samenuk says.

There have been allegations in the industry that in the past, Network Associates had claimed revenue for products sold to distributors and channel partners, but that had not been sold to end users. Such "sales" could evaporate if distributors returned the software.

Adding to Network Associates' day, McAfee execs Tuesday advised shareholders to reject the now-postponed deal, calling the financial terms inadequate. Network Associates had offered 0.675 of a Network Associates share for each share of McAfee.