It was, to say the least, a joyless holiday at Networks Associates Inc.
On Dec. 26, 2000, the computer security company now known as McAfee Inc. said it expected fourth-quarter revenue of $55 million to $65 million–a shocking drop from nearly $239 million the previous quarter.
Investors responded by unloading the company’s stock, sending shares down a breathtaking 62 percent in a day.
At the same time, Network Associates announced that Chief Financial Officer Prabhat Goyal was resigning. The company offered no explanation, but federal authorities now allege he was part of a massive financial fraud scheme that had inflated company revenues for months before it finally imploded in that fourth quarter.
Goyal, indicted on securities fraud and conspiracy charges in June, disputes the accusations.
“Our position is they are not accurate, that Mr. Goyal was a very professional, honest CFO and that essentially what this is about is an attempt by the government to criminalize accounting judgments,” said Goyal attorney Stephen Jonas.
Any improprieties, he said, were perpetrated by former Controller Terry Davis, who pleaded guilty to securities fraud charges in June 2003.
Jonas said he has had no discussions with the company about Goyal returning any of his more than $460,000 in bonuses or more than $5.1 million in stock sale proceeds during the period covered by the restatement.
The Securities and Exchange Commission accused Goyal of insider trading in June, saying he sold shares while knowing that McAfee was overstating results. Jonas said the lack of a criminal charge demonstrates the weakness of that case.
In a restatement filed in October, McAfee, citing “accounting inaccuracies,” wiped out $108.7 million in net income and $112.6 million in revenue from 1998 through 2002. For the years in which it disclosed that information, just over a third of its fees to its independent accountants were for the actual audits.
Goyal was among several insiders who sold more than $115 million worth of stock during the period that was restated, while buying a mere $3,646 worth on the open market.
Company officials declined repeated requests to discuss the restatement. The company said in August that it remained under investigation by the SEC and the Justice Department.
