June 17, 2004 – LAWFUEL – The Securities and Exchange Commission to…

June 17, 2004 – LAWFUEL – The Securities and Exchange Commission today filed civil fraud charges in the United States District Court for the Northern District of California
against Prabhat K. Goyal. Goyal was Vice President and Chief Financial
Officer at Santa Clara, California-based software manufacturer Network
Associates, Inc. until his departure in 2000. The Commission’s complaint
alleges that from the second quarter of fiscal 1998 through the fourth
quarter of fiscal 2000, Goyal engaged in a fraudulent scheme to, among other
things, overstate Network Associates’ revenue and earnings in violation of
the federal securities laws. The Commission’s complaint also alleges that
Goyal sold stock while in possession of material non-public information
regarding the financial fraud at Network Associates.

According to the complaint, Network Associates oversold products to its
distributors and Goyal oversaw the improper recognition of hundreds of
millions of dollars of revenue. In particular, 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,
* made secret payments to distributors to induce them to hold
excess inventory and buy more products,
* offered distributors deep discounts and rebates on amounts
that distributors already owed to Network Associates for prior product
purchases and from which Network Associates already had recorded revenues,
* sold products to distributors on consignment in violation of
Network Associates’ written sales contracts and stated revenue recognition
The complaint further alleges that Goyal took action to conceal the fraud,
directing that payments and discounts to distributors be misrecorded in
Network Associates’s books, and directing the release of unrelated tax
reserves to cover payments to distributors and to increase inadequate sales
reserves. The complaint alleges that Goyal knowingly or recklessly
defrauded investors through the reporting of false and materially misleading
financial information in periodic reports, financial statements, and
securities registration statements that Network Associates filed with the
Commission, in press releases, and in other public statements.

The Commission’s complaint seeks to permanently enjoin Goyal from violating,
or aiding and abetting future violations of, the antifraud provisions of the
federal securities laws, Section 17(a) of the Securities Act of 1933,
Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule
10b-5; from violating the provisions of the federal securities laws that
prohibit falsifying corporate records and lying to accountants, Exchange Act
Section 13(b)(5) and Exchange Act Rules 13b2-1 and 13b2-2; and from aiding
and abetting future violations of certain reporting and recordkeeping
provisions of the federal securities laws, Exchange Act Sections 13(a),
13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and
13a-13. The complaint also seeks an accounting, disgorgement of ill-gotten
gains both in the form of salary and bonuses and from sales of stock,
prejudgment interest, civil money penalties, and an order prohibiting Goyal
from acting as an officer or a director of any reporting company.

The United States Attorney for the Northern District of California today
announced criminal charges against Goyal arising from the same conduct
charged in the Commission’s complaint.

This is the second lawsuit that the Commission filed in connection with
accounting issues at Network Associates. See SEC v. Terry W. Davis,
Litigation Release No. 18189 (June 12, 2003).

The Commission thanks the U.S. Attorney’s Office for the Northern District
of California and the Federal Bureau of Investigation for their cooperation
in this matter.

The Commission’s investigation into these matters is continuing.

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