Accounting & Tax

Charges for Ex-CFO of Network Associates

Former chief financial officer Prabhat Goyal faces a 20-count criminal indictment and SEC civil charges for ordering millions of dollars in imprope...
Stephen TaubJune 18, 2004

Former Network Associates Inc. chief financial officer Prabhat Goyal was indicted in San Francisco federal court for orchestrating a scheme to inflate the company’s sales and earnings from 1998 through 2000, according to the Associated Press. In addition, the Securities and Exchange Commission filed civil fraud charges against Goyal for manipulating financial reports and insider trading.

The 20-count criminal indictment alleges that Goyal ordered millions of dollars in improper payments that helped mask financial troubles at the software and computer-security company, according to the wire service.

If convicted, Goyal can receive as much as 10 years in prison on each of 19 securities fraud counts, plus five years for one count of conspiracy. He also faces fines ranging from $250,000 to $1 million on each count, according to the report.

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Goyal’s attorney, Stephen Jonas, told the AP his client is innocent. “Mr. Goyal is an honest and respected finance professional,” Jonas reportedly said. “He was instrumental getting Network Associates off the ground and making sure [the company’s] finances were sound.”

According to the SEC complaint, Network Associates oversold products to its distributors, and Goyal oversaw the improper recognition of hundreds of millions of dollars of revenue. More specifically, the complaint alleges that Goyal and others at his direction used a wholly-owned Network Associates subsidiary to repurchase products previously sold to distributors in order to reduce distributor inventory levels and limit product returns.

The commission also asserts that Goyal made secret payments to distributors to induce them to hold excess inventory and buy more products; that he offered distributors deep discounts and rebates on amounts that they already owed Network Associates for prior purchases and from which the company already had recorded revenues; and that he sold products to distributors on consignment, in violation of Network Associates’ written sales contracts and stated revenue recognition practices.

According to the SEC, Goyal took action to conceal the fraud by directing that payments and discounts to distributors be misrecorded in Network Associates’s books, and by directing the release of unrelated tax reserves to cover payments to distributors and to increase inadequate sales reserves.

Goyal, as well as chief executive officer William Larson and president Peter Watkins, resigned in December 2000.

Network Associates is perhaps best known for its McAfee antivirus software. According to CBS MarketWatch, the company plans to adopt the McAfee name this summer.