Accounting & Tax

McAfee Ex-CFO Convicted of Fraud

Scheme caused the company to overstate revenue by more than $470 million and understate losses by approximately $330 million between 1998 and 2000.
Stephen TaubMay 11, 2007

Former McAfee chief financial officer Prabhat Goyal has been convicted of 15 criminal charges, including securities fraud, filing false reports with the Securities and Exchange Commission, and making false statements to auditors, according to federal prosecutors.

The scheme caused Network Associates, McAfee’s predecessor company, to overstate revenue by more than $470 million and understate losses by approximately $330 million between 1998 and 2000, prosecutors maintained.

Goyal served as CFO of Network Associates from late 1997 until his resignation in early 2001, shortly after he was indicted on 20 counts of securities fraud and conspiracy. Five counts were dismissed before they were submitted to the jury; Goyal was convicted on all remaining charges.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

He faces a maximum of 10 years imprisonment, a $1 million fine, three years of supervised release, and restitution, according to prosecutors.

The indictment alleged that between 1998 to 2000, Goyal conspired with others to commit securities fraud by, among other things, causing Network Associates to make millions of dollars in payments to its distributors falsely disguised as discounts, rebates and marketing fees in order to convince the distributors to hold excess inventory; not returning unsold products; and purchasing more products than the distributors could actually sell to customers during a given quarter.

Prosecutors also alleged that Goyal concealed from the company’s board and its outside auditors the true nature, extent, and source of the improper payments to its distributors as well as other special terms and conditions reflected in oral and written side agreements.

Last year, McAfee, which is best-known for its anti-virus software programs, agreed to pay $50 million to settle accounting fraud charges with the SEC.

McAfee is also one of many companies being investigated for its stock-option practices.

In February, former general counsel Kent Roberts was indicted for fraudulently backdating stock-option grants in 2000 and 2002. The seven-count criminal indictment alleged that Roberts granted himself and others in-the-money stock options, and hid the true nature and value of the grants from Network Associates, its board, shareholders, auditors, the public, and the SEC.