Ex-Network Associates exec pleads guilty

 A former executive of security software company Network Associates  pleaded guilty in 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 for the Santa Clara, Calif., company. He pleaded guilty to one count of securities fraud and agreed to cooperate with the U.S. Department of Justice investigation into Network Associates, according to a statement released by the U.S. Attorney’s Office.

Network Associates could not immediately comment.

Davis admitted to carrying out a number of illegal activities between 1998 and 2001 that were designed to inflate Network Associates 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 Network Associates products for which Network Associates had already recognized sales revenue, according to the U.S. Attorney’s Office.

The group arranged to purchase back unsold inventory from distributors through a Network Associates 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 Network Associates’ independent auditors, PricewaterhouseCoopers.

The manipulations were uncovered in an internal audit conducted in 2002, prompting Network Associates 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 Network Associates 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.