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Security Vendor McAfee to Pay $50 Million Fine
goombah99 writes "RedHerring.com reports that Security Vendor McAfee has agreed to pay a fine of fifty million dollars stemming from false SEC filing. McAfee cooked its books, overstating its revenues one year by 131%, or half a billion dollars. The method employed was 'channel stuffing' in which compliant re-sellers are effectively paid to buy and hold inventory they may never sell. The shipped goods are booked as revenue and the payments disguised in the books. When it caught up with them, McAfee's stock price crashed, wiping out a billion dollars of shareholder capitalization. The story quotes an analyst saying this maybe the swan song for the once dominant vendor."
disappointment. After they're gone, I'm sure it'll only be another twenty years before I stop seeing customers' boxen with Macafee's anti-virus expired demo notification popping up every time I touch it. Maybe they should have given away more nagware, that might have helped.
This is reminiscent of Enron's mark to market accounting, wherein you basically determine the real market asset value, then you just make up a bunch of shit.
The theory of relativity doesn't work right in Arkansas.
Fines are not enough and hurt shareholders more than those who are responsible: the executives. The true punishment should be fines and jail time for the COO, CFO, CEO and all the other Cx0's. What does fining a company do except bleed the shareholders?
The method employed was 'channel stuffing' in which compliant re-sellers are effectively paid to buy and hold inventory they may never sell.
I think there should be class in 'B' school called, "Accounting Tricks That Get You In Trouble with the Law: You're not as smart as you think you are."
Seems like a lot of companies are into hot potato. When did it become frowned upon to care about what happens to the business five or more years down the road?
Try not. Do or do not, there is no try.
-- Dr. Spock, stardate 2822-3.
And people wonder why they don't trust the government, the stock market, or anti-virus software to do what is right and correct. They need to run a thorough fraud scan on their accounting software and then quarantine the fraud.
He who knows best knows how little he knows. - Thomas Jefferson
I'm not making any accusations, of course, just food for thought. But, with all the corruption in corporate America these days, I'd actually be surprised if something like that hasn't taken place in at least one of the major firms.
Sticking feathers up your butt does not make you a chicken - Tyler Durden
what interests me is what norton/symantec is going to do, now that (one of) their biggest competitors is in such a position.
It's always easier and often more profitable to take the money and run then build for the future.
---Technology will liberate us if it doesn't enslave us first.
Seeing as how they (MSFT) are playing the anti-spyware role, maybe McAfee is ripe for a MSFT buyout and integration with Vista?
Hmmm... a company that cooks the books so they can lie to shareholders. What other unethical/illegal/standard business practices are they up to?
*** Sigs are a stupid waste of bandwidth.
No wonder corporate fraud is so popular. Even if you get caught, the cost is less than the benefit.
This will continue until a lot of these people end up in prison for a few decades.
Never liked them anyways. 'Stuff was crap.
They probably figured they needed to do something. After all... a 800 lb gorilla (called Microsoft) just entered their space. So they are screwed anyways.
Sorta ironic...all of our machines here at the SEC building I work at have McAffee virus scan installed. Not having it updated to the most recent virus lists is something that's gotten me kicked off the network at least 3 times.
--trb
Since Sarbanes-Oxley has only been in effect since last fiscal year, I wonder if this was caught during a SOX audit or it just got outed on its own.
12:50 - press return.
If I cause damage worth X dollars, you can bet your ass that I will be forced to repay the amount. And yet these guys get away with paying a nickel per dollar? Shouldn't they be forced to compensate the shareholders for their losses? Take it out of the paychecks of all of the top executives! Throw some in jail! At the very least, take back the money these executives made due to the artificially high price.
....16,284 files scanned. Warning! Unknown file found: CookBooks.exe Do you wish to Quarantine or Delete?
"This is America... where the will of the few outweigh the outrage of the many..." - Unknown
McAfee cooked its books, overstating its revenues one year by 131%, or half a billion dollars.
Anyone else disappointed it wasn't for making shitty and processor hogging software?
Since when has this country used intellectual elite as a pejorative term?
is that all they've been up to? Like making viruses...
All the recent accounting scandals basically start with artificially incresing the revenues in the books, but from the beginning it is clear that at some point all of it will go down.
In this case, sure they can ship like mad to the distributors, but at some point the distributors are going to stop accepting and sending back the excess supplies. This could only work if demand for their product will dramatically increase in the future, but I doubt they were betting on that.
Given all this I can't understand how the executives of these companies hope they can get away with it. I guess that given all the pressure and stress that they face, their judgement is clouded and they hope for a miracle in the future. I am especially surprised by these methods b/c they generally only work for a very short time. If they worked for 40-50 yrs I could understand why the executives use them.
I hear this was caused by an Excel Marco virus, only McAfee was to embarrased to admit it.
Hey, wait just a second. Leave the poor CTO out of it :-)
Their sales numbers will now become legitimate.
"And we have seen and do testify that the Father sent the Son to be the Savior of the World"
1 John 4:14
It makes sense--after all, Microsoft seems to like the biggest, most bloated, least stable versions of software it can find--especailly if they have nice GUI's. Seems McAfee fits the bill on that one. Oh yeah, and now Microsoft can buy them for pennies on the dollar.
----- Connection reset by beer
The death of McAfee is exaggerated. Look at the stock price over the last 24 hours: it's up 1 point...
Evil Overlord Rule #86. I will make sure that my doomsday device is up to code and properly grounded.
... I can't find a company that want's me to take part in channel stuffing? What a great deal...
I used to have a better sig but it broke.
So much for my three free months of system resource hogging antivirus protection that came with my new PC.
This is yet another reason to go with Trend Micro.
...All I can say is that my life is pretty strange...
Their software is shit anyway.
Mark to market isn't what Enron did.
Yes, Mark-to-market is what Enron did:
"As McLean pointed out, her Fortune article, "Is Enron Overpriced?" appeared in March 2001. Yet in 1993 an article in Forbes sharply questioned Enron's troubling mark-to-market accounting for assets, which claimed profits for investments long before it was clear that they would in fact evolve. A few years later, an article in Fortune again signaled concern."
The theory of relativity doesn't work right in Arkansas.
Apparently, I missed the analyst gloom/doom forecast. I did see this:
Analysts said the settlement would close a chapter in McAfee's history and let the company focus on its market, which is expected to heat up this year with the entry of Microsoft.
Here's their finance info on Yahoo. They seem to have a $4.73B market cap and are currently dead center of their year stock price range.
Doesn't seem that damaging to them, actually - though they are in for a tough scrap when MSFT gets in the act.
The little guy just ain't getting it, is he?
Me, cynically...
One shall speak only if what one has to say is more beautiful than silence
I think you mean Network Associates, who bought McAffee years ago. Just after they'd bought Dr Solomon's, in turn, as it happens.
Step 3: ????
Step 4: profit!!!
...Rob
The American Dream isn't an SUV and a house in the suburbs; it's Don't Tread On Me.
Found a link to avast! on a Slashdot comment. Switched from Symantec's own demo version preinstalled on my PC (thanks for the time). Never looked back.
;) ).
The only nags I get now (which can be switched off) are those of automatic daily updates. For me, that's a Good Thing®.
Demos are nice. Free stuff is better. Hunt down freedom whereever it hides (and I don't mean domestic spying
You can hold down the "B" button for continuous firing.
I just checked on Yahoo Finance, and McAfee's stock price is climbing back. They also report that McAfee has already agreed to settle the charges by paying $50 million.
h tml?.v=2
http://biz.yahoo.com/ap/060104/mcafee_settlement.
The Chief Tittays Officer rocks! Do not forget that.
*to angered female Slashdotters* Fine, forget that.
You can hold down the "B" button for continuous firing.
These kinds of antics, while not always as dramatic, are widespread and endemic. Execs can and should be held accountable, but the kinds of incentives to "cram" within the last part of a fiscal period come from the revenue-reporting environment in which companies exist, namely from the cut-off cliff that ends a given fiscal period. I think it'd be a major step forward to get rid of this cliff, and replace it with a slope. For example: let 't' denote a value between 0.0 and 1.0 denoting how far into the current fiscal period the company is. Any booking made at time t is booked in the current period by multiplying by (1.0-t), and the remaining fraction is reported in the NEXT period. Cubic, non-linear curves could be used, but the point is that this would avoid the all-to-common situations of salesmen frantically calling in favors during the last few hours of any given period.
- First they ignore you, then they laugh at you, then ???, then profit.
Just release a bunch more viruses into the wild to increase FUD and pump up sales.
I've been disgusted with McAfee for a while, but I finally had enough when my parents got a new Dell recently (which ships with McAfee for some configurations).
I installed Firefox and made it the default browser. Then I tried to configure some of the advanced McAfee antivirus options. First, I couldn't even open the interface because McAfee must use IE (with ActiveX) to produce the GUI. Since Firefox was set as default, McAfee just spun and spun fruitlessly until I realized what was happening.
Then, my last name has an apostrophe in it. Alas, McAfee cannot launch the AV scheduler if your logged in user name (on XP Home) contains an apostrophe. That took a LONG time with a McAfee tech to figure out.
Never again. Crappy software for a crappier company.
Good, I hate seeing machines with McAffee, id say there software is worse than the virii and spywares that its designed to delete.
(nothin like in the middle of CS and getting a pop-up to tell me that I have a virus it cant delete over and over and over again)
GO AVG
I bet there's a market for a little windows program that sits in the system tray and monitors the revenues and accounting trends of a particular company. It could match the trends and heuristics of the financials against known trouble patterns. When something suspicous is detected it could pop up a warning, or ask the user what they want to do.
What it really reminds me of is what "Chainsaw Al" Dunlop did at Sunbeam.
http://en.wikipedia.org/wiki/Albert_J._Dunlap
I'll bet upper-management was dumping stock as fast as they could while keeping the price up with this sad old trick.
It was paper money. untill you actually sell your shares, the price of the share has no value. If you ad bought at 1$ and it went up to 2$ and then back down to 1$ you have not actually lost 1$. So most of that billion loast came froma fake billion gained
Tell that to the folks that bought the stock at the higher price, only to watch it collapse into a smoldering pile. True, their loss isn't "realized" until they sell their shares, but their actual monetary loss is quite real. Can't speak for how many shares were purchased above the current price, but you can bet it was plenty and the actual loss is closer to the billion than you think.
Microsoft routinely moves future estimated pre-sales of their products to current year's tallies, making it near-impossible to gauge their true sales numbers.
Is that different, at all? I mean, Microsoft's business model is somewhat akin to a subscription service, correct? (this is a serious question)
Enron, on the other hand, booked $53 million in profit on their on-demand-video co-venture with Blockbuster, before the technology was even proved viable.
The theory of relativity doesn't work right in Arkansas.
The same thing Symantec always does: buy 'em!
1. McAfee cooked its books, overstating its revenues one year by half a billion dollars, or 131%.
2. When it caught up with them, McAfee's stock price crashed, wiping out a billion dollars of shareholder capitalization.
3.McAfee has agreed to pay a fine of 50 million dollars stemming from false SEC filing.
Surely, $50M will be more than enough to compensate the shareholders for a billion dollars of losses... ha-ha.
Suckers wanted! Apply at your local stock exchange today!
Would somebody please tell me why nobody is going to jail over this? %%!@$* it torques me off when nobody in corporate america is ever held accountable for outright fraud and are allowed to continue to draw seven and eight figure salaries + infinite perks and incentives at the expense of employees, stockholders and customers.
If the g'vt kept the data on you that google does you'd better believe you'd be calling it "doing evil"
Isn't it about time CEOs start going to jail for this kind of fraud and deception? How many folks lost their retirement portfolio when this scheme crashed?
The fiction of the "CORPoration" - a "person" with even more rights and less responsibilities then a REAL person, a CORPUS, should be outlawed and people in charge held PERSONALLY responsible for these "corporate" crimes.
Running with Linux for over 20 years!
"When it caught up with them, McAfee's stock price crashed, wiping out a billion dollars of shareholder capitalization. The story quotes an analyst saying this maybe the swan song for the once dominant vendor." The scheme was discovered in 2000, and the billion dollar loss of capitalization occurred at that time. Since then, the stock has recovered virtually all of the lost capitalization, and had you purchased the stock in 2001 you would be ecstatic with the performance since then. Check out the following stock price summary from Yahoo: http://finance.yahoo.com/q/bc?s=MFE&t=my
The CEO of McAfee will get a slap on the wrist, if that?
Corporate execs are getting away with everything and not being held accountable for their actions. They are frauding stockholders, thats a crime, period. Yet someone with millions in assets can walk away from these issues without so much as reprimand.
From Nortel to WorldCom, Exxon, etc, these companies are being run by crooks aiming to get themselves richer at the expensive of stock holder just trying to invest in something to pay for their retirement.
In Canada, NO LEGAL ACTION has been taken against Nortel execs that drove the stock price over $100 and then allowed the stock to plunge to less then $5.00. The execs in charge simply walked away from Nortel with millions in compenstation while tens of thousands of people lost their jobs, pension, and stock holdings not to mention countless stock holders that lost their shirts investing in Nortel. Then, a few years after their stock price drop, Nortel was caught cooking the books AGAIN with no penalties!
This just proves the legal system and politics are corrupt, if you have enough money you can get away with anything, even murder, if you throw enough money into the system.
I haven't thought of anything clever to put here, but then again most of you haven't either.
This story is being spun into sensationalistic crap. The story is, the fine is being levied by the SEC for, and I qtfa, "securities fraud ... during the period between 1998 and 2000." I used to work for McAfee, and I want to educate the community.
All of what you know as McAfee used to be called Network Associates up until about 2004. It was formed in 1998 by a massive buy-up of various software firms, including Network General and McAfee Associates - hence the name, "Network Associates." During this reign, the CEO committed the fraudulent acts, including the channel stuffing as indicated, and was eventually fired in 2000 or 2001 for fraud. The new CEO, George Samenuk, took over and has since been credited with turning the company around, reestablishing the McAfee brand identity, focussing on the core products, cutting loose various deadwood (including, unfortunately, the research group that I worked for), and returning the company to legitimate profitability. At an all-hands (the one time Samenuk braved a visit to us research dweebs), he explained that the old regime consisted of "crooks," and that he vowed to be forthright with the SEC and do his personal best to fly straight. To my knowledge, he has done a good job of that ever since.
This fine being reported today is a result of the SEC, acting in good government swiftness, merely enforcing a punishment for deeds done in the past, under different leadership. Take this news as no indication of the current state of the company or its leadership, but view it merely as a capstone to an unfortunate period in McAfee's history.
This is one of the situations where I wish the US took a page from China's book on dealing with criminals. Take the executives, try them, execute them. Rinse, repeat. Maybe after a few executions corrupt executives would get the idea that destroying the financial lives of hundreds of thousands of people carries a stiffer penalty than, say, punching a cop.
In addition to not protecting you from criminal charges just declaring bankruptcy will not neccessarily wipe away your responsibility either. Certain debts are carried over to the officers of said company (something to think about if your offered that position). Case in point I worked for a company that during hard times simply did not pay its portion of the employees taxes. Even when the company folded. Certain officers found themselves PERSONALLY responsible for some portions of that debt as well as others.
If you think you can create a corporation just to buck the system and come out unscathed you are sadly mistaken.
Now I understand why their software used to tell my computer it had two viruses but could never do anything about them. The software was following the coorporate policy of overstating results.
Shouldn't they be forced to compensate the shareholders for their losses?
No. No, they shouldn't. The shareholders bought the stock hoping it would go up. It went down. The shareholders factored in various kinds of risk -- market risk, credit risk, compliance risk. Looks like they should have allowed more for compliance risk in this case, but that's life.
Are you suggesting that whenever a stock goes down because of human stupidity/greed/malice, investors who were holding it at the time should be compensated?
What about when a stock goes up? Should investors with short positions, be compensated?
Who should do the compensating? I don't think McAfee has that kind of money now.
I think it might be a lot simpler and fairer to just expect investors to take responsibility for their own investments.
I also think that it's pretty fucking sad that the above is no longer intuitively obvious to everyone.
Whence? Hence. Whither? Thither.
Well - it was the shareholders who were defrauded and its the shareholders that foot the bill for the fines.
Question: Did any of the execs who perpetrated the fraud have to pay the fine? I don't think so. So if the fine is paid from the company treasury then its the shareholders who lose out.
Wasting other people's money is just so much fun!
Anyone know if anything happens to the 'compliant re-sellers'?
If they were getting paid to buy product on that scale - certainly that is a red flag that something is questionable. If it was deliberate participation on their part, seems there should be some repercussions for their collusion in this fraud. (or maybe just not covered by this article)
If law doesn't cover this for some reason, with that many resellers involved, amazing it didn't get exposed earlier on.
...the single Windows machine in the house (my girlfriend's) to Trend Micro's PC-cillin a few nights ago. The box had been using McAfee for over a year, and I really didn't like how it seemed to refuse to auto-update, and manual update's often buggy use of Active X controls (i.e. IE). I really liked their Scanmail for Exchange product, and I'm glad to use it for client use now, as they appear to have worked out some kinks that were present in earlier versions.
Yes, I can tell that PC-cillin also appears to use Active X for manual updates (would love to be corrected), but, in my case, the auto update works well, so there is no need to use the manual update. And I personally believe that the Trend Micro labs are quicker on the draw on new viruses and trojans, which, in the end, is what I pay for.
I was an employee on the inside watching this happen.
It was hard to say that McAfee actually defrauded anybody. It was quite clear in their quarterly reports that they were stuffing the channel. The problem was the Internet bubble when everyone was disregarding such things. Indeed: everyone was doing it, and McAfee was under enormous pressure to do the same sorts of things to inflate their numbers simply so that they wouldn't appear to be falling behind everybody else.
It also helped that Bill Larson, the CEO, was a crook. The press release pointed to some lower-level flunkies (the CFO of the time), but the real direction came from Bill Larson. He basically fired or drove from the company anybody with ethics. That meant that such abuses continued even after Larson left, because that's the culture that he created.
In one case, we were working on a product that wasn't finished yet. It didn't work. Bill Larson told us to ship it anyway, which we did. He record millions of dollars from it because it was in the channel (unsold). He then acquired a company, and wrote off the product in the channel as a "one-time writeoff". This sort of stuff is visible in the SE fillings, and people should have treated been able to see how much McAfee was writing-off for each acquistion, but analysists refused to look at those sorts of numbers. They, too, were under tremendous pressure to give every stock a glowing recommendation. The bubble was fragile: outing companies like McAfee by correctly interpretting their fillings ran the risk of bringing the entire bubble crashing down -- and their enormous fees.
fine for a billion in illegal gains - not a bad scam...
Oh well, what the hell...
Here is one company that does it: http://www.spyaxe.com/ I would be pretty surprized if others don't.
Oh well, what the hell...
This settlement pertains to actions taken in 1998 to 2000. The summary makes it sound like McAffe just got caught with their hand in the cookie jar, when in fact this is the company trying to clean up after an administration long since gone.
The stock went up after the announcement, so the markets seem to think the settlement a good idea.
(Disclosure: I'm a McAffe stockholder, due to stock options from an old employer and a series of mergers (TISX -> NETA -> MFE).
Tom Swiss | the infamous tms | my blog
You cannot wash away blood with blood
Good god people, this accounting foolishness took place years ago and the managment team that oversaw it is long gone. The managers since put in place to ensure it doesn't happen again have finally sorted out a deal with the SEC, that's all. The actual crime was years ago, and the charge was also already paid in that funds were already set aside to cover it.
When it actually happened the stock plummeted to around $4, but that time is (I hope) long past.
"Wasting other people's money is just so much fun!"
That reminds me. Get back to work!
Who secures the Security Venders?
Who are these companies? McAfee who? Norton? Never heard of'm. I use, my company uses, my friends use Trend Micro. You have options: free online scan (House Call), get a full version of House Call, and Office Scan for the enterprise. These folks have ben doinf a great job and, I don't feel they're ripping anyone off as yet. And all versions have ant-malware.
...is that the company lied to get shareholders to buy stock. The evaluation of risk was based on financial information (among others) provided by - and falsified by - the company. The executives should be held accountable for the losses sustained, as, probably, should the auditing firm. It's individuals who did the lying, not the corporation.
Now, had the fall in stock price been for some exterior means. For example, all the virus writers in the world burst into flame and the viruses in the wild mysteriously disappear. Or, just as likely, MS produces a secure OS. Then the stock falls because there is no demad for the product. Then, I don't feel bad for the investors - they knew the they took a chance. Nobody lied to them about revenue numbers.
Is it just my observation, or are there way too many stupid people in the world?
This is rather disgusting. McAffe is chosen (from consumers, to enterprise services) based on the key notion of *trust* - we have to *trust* that McAffee will secure our machines and networks and we pay a lot of money for the pleasure. So upper-brass at McAffee were liars and frankly felony-level criminals these past few years? Burn them at THE STAKE!
Horns are really just a broken halo.
"I cant trust something from a company called Make-A-Fee".
thats just punishing the very people who have already lost out from the crash of this scam.
the people who should be being punished are those individuals behind this
note: i'm known as plugwash most places but i screwd up registering that here somehow in the past and now can't register
I haven't installed Anti-Virus software on any of my home machines simply because I don't find that they're affective anyway. They still miss stuff. I believe that I know what websites are safe, use FireFox for the ones that aren't and I still miss a little Spyware. What's the difference? I've never had an actual virus, so I'm not going to waste system resources.
[%] Cingular Ringtones
For a moment there I thought the fine was going to be for intentionally ignoring Sony's rootkit malware.
Is that they are there to ask you for money. Really, it's not too hard to automate whatever-the-fuck it's popping up about. So most nag screens are either due to UI design idiots or corporate dicks who insist on getting their "branding" in your face.
I wonder if the McAfee books show anything about revenue generated from not paying rebates. The parents bought a McAfee AV program for their aging Win98 box. They never got the rebate they were supposed to get for doing so. Plus, it slowed down their computer so much as to make it nearly unusable, plus it tied up their dial-up with endless updates, making it nearly impossible just to check e-mail. And, I just love how the AV software tries to sell you other "security" products.
I uninstalled McAfee and installed NOD32 -- much nicer. No real annoyances and small incremental updates. Now their computer actually functions.
Thanks for nothing, McAfee.
...ClamWin, an open source free antivirus and get free updates and a "subscription" that never runs out.
Are you going to trust a company that is this deceitful to run audit programs on your computer and guard you? I am not.