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Former Network Associates Exec Pleads Guilty

Terry Davis was charged with securities fraud as the result of probes over the way the firm booked revenue from partners.

June 13, 2003|From Times Wire Services

SAN JOSE — A former executive of Network Associates Inc. has pleaded guilty to securities fraud in connection with a scheme to overstate the software maker's revenue and earnings from 1998 to 2000, prosecutors said Thursday.

Terry W. Davis, 41, a vice president of the Santa Clara, Calif.-based company until April 2002, entered the plea Wednesday in federal court in San Francisco. As part of the plea agreement, the former executive agreed to cooperate with the Justice Department's investigation.

Prosecutors said investors lost more than $931 million when the company announced it would have to restate its earnings in April 2002.

Davis faces a maximum sentence of 10 years in prison, a $250,000 fine and restitution. A sentencing date has not been set.

Network Associates is the subject of probes by the Securities and Exchange Commission and the Justice Department over the way the company booked revenue from partners that also distributed its products. Davis is the first person to be charged as a result of the dual investigations.

In a separate civil complaint filed Wednesday in federal court in San Francisco, the SEC said Davis participated in the scheme from the second quarter of 1998 through the fourth quarter of 2000.

"Davis and other Network Associates employees actively participated in a multi-part scheme to artificially inflate the revenue generated from the sale of the company's products to distributors," the SEC said.

Davis served as vice president and corporate controller before leaving the company in April 2002, a company spokeswoman said.

In his guilty plea, Davis admitted to secretly paying distributors to hold excess or unsold inventory they had purchased from Network Associates but couldn't sell, prosecutors said.

Davis also helped Network Associates buy back unsold products from distributors through its subsidiary, Net Tools Inc., so the returns wouldn't result in a reduction in revenue. He also said others were involved in the complicated accounting plot to meet targeted revenue goals.

"We're satisfied with the plea, and Terry completely acknowledges his responsibility and part in this," said Thomas J. Nolan, Davis' attorney. "He will continue to fully cooperate in the investigation."

Davis admitted that he exercised stock options between Feb. 26, 2002, and March 8, 2002, and received proceeds of $1.4 million based on insider knowledge of Network Associates' internal investigation.

He also admitted making false statements to the company's independent auditor, PriceWaterhouseCoopers.

Shares of Network Associates rose 7 cents to $13.12 in Thursday trading on the New York Stock Exchange.

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