SEC Sues Former Network Associates CFO

The Securities and Exchange Commission on Wednesday filed suit against a former CFO of Network Associates for fraud and insider trading.

The SEC accuses Prabhat Goyal, who resigned at the end of 2000, of using the company’s distributors to overstate sales, the Financial Times reported. Court papers filed in federal court also say that Goyal used a Network Associates subsidiary to buy back inventory that had been sold to the company’s distributors. He also allegedly made secret payments to the distributors to hold onto excess inventory.

Meanwhile, Bloomberg News reported that a federal grand jury charged Goyal with scheming to overstate the company’s earnings and revenue. The indictment, unsealed Wednesday in San Francisco, charges him with 20 counts of securities fraud and conspiracy.

Network Associates, which makes security software, is enmeshed in one of the tech industry’s biggest accounting scandals. The financial restatement that resulted showed that its supposed 1998 profit of $32 million was actually a $319 million loss. The restatement cut the company’s revenue that year by 56 percent, or $534 million.

Goyal's lawyer, Stephen Jonas, said his client will fight the charges, according to the San Jose Mercury News. "Mr. Goyal is an honest finance professional," Jonas said. "He was instrumental in guiding Network Associates from its creation into one of the leading companies of the software industry. He did nothing wrong."

Most of the scandal centers on 1998 earnings, but the SEC accused Goyal of keeping the "fraudulent scheme" going until late in 2000. The SEC says he sold shares at this time, while having insider information about the impact of the erroneous financial statements.

Terry Davis, the company's former corporate controller, has already pleaded guilty to one charge of fraud. He was accused of selling $1.4 million of shares while being aware that fraud had occurred.

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