Ex-Network Associates executive pleads guilty to securities fraud

A former executive of security software company Network Associates pleaded guilty in a U.S. District Court on Wednesday to charges of securities fraud, the first charges to emerge from the U.S. government’s investigation into the company’s bookkeeping practices.

A former executive of security software company Network Associates pleaded guilty in a U.S. District Court on Wednesday to charges of securities fraud, the first charges to emerge from the U.S. government’s investigation into the company’s bookkeeping practices.

Terry W. Davis served as vice president of finance and corporate controller at NAI. He pleaded guilty to one count of securities fraud and agreed to cooperate with the U.S. Department of Justice investigation into NAI, according to a statement released by the U.S. Attorney’s Office.

NAI could not immediately comment.

Davis admitted to carrying out a number of illegal activities between 1998 and 2001 that were designed to inflate NAI’s revenue in order to meet stated goals, the statement said.

Davis and others used a variety of schemes to entice distributors into holding on to unsold NAI products for which the company had already recognized sales revenue, according to the U.S. Attorney’s Office.

The group arranged to purchase back unsold inventory from distributors through an NAI subsidiary, Net Tools, and issued payments to distributors to hold on to excess inventory. The payments were in the form of cash or discounts and rebates that relieved the distributors of debt owed to the company.

Davis also admitted making false entries in the company’s general ledger and false statements to NAI’s independent auditors, PricewaterhouseCoopers.

The manipulations were uncovered in an internal audit conducted in 2002, prompting NAI to restate its financial reports for 1998, 1999 and 2000, causing the company’s stock price to fall steeply.

In addition to the securities charges, Davis admitted to illegally trading more than 90,000 shares of NAI common stock, worth about $1.4 million, based on insider knowledge of the findings of the internal investigation, the U.S. Attorney’s office said.

Davis faces a maximum penalty of 10 years in prison and a fine of $250,000 and will have to pay restitution for losses caused by his conduct, including the proceeds of his insider trading, the U.S. Attorney’s Office said.