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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."
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
Seeing as how they (MSFT) are playing the anti-spyware role, maybe McAfee is ripe for a MSFT buyout and integration with Vista?
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.
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?
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 :-)
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.
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.
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.
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.
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.
...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.
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
...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?
"I cant trust something from a company called Make-A-Fee".