Mcafee Fraud

McAfee, Inc., formerly known as Networks Associates, Inc, is a company based in California that manufactures and supplies security for technology systems of both individual consumers and businesses. McAfee, Inc. provides solutions that “are designed to work together, integrating anti-malware, anti-spyware, and virus protection with security management features that deliver unsurpassed real-time visibility and analytics, reduce risk, ensure compliance, and help businesses achieve operational efficiencies” (McAfee, Inc.). Additionally, McAfee, Inc. provides virus and spyware removal services for computer systems that have been infected.

From 1998-2000, McAfee, Inc. falsely reported revenues and participated in channel-stuffing, therefore misleading investors. The goal was to increase the price of a share of stock in order to create larger investments. McAfee, Inc. offered discounts and rebates to distributors with the intention of selling massive amounts of their product—more than can reasonably be sold by the distributors. Additionally, when the distributors could not sell the software, McAfee offered them millions of dollars to hold the product rather than returning it for a refund. Furthermore, McAfee used another company that it owned, Net Tools, Inc., to buy the inventory that was oversold. In order to cover up the fraud, McAfee reported “false and materially misleading financial and other information” in reports and statements filed with the SEC (SEC, 2006). These actions did not comply with Generally Accepted Accounting Principles, and McAfee, Inc. violated sections of the Securities Act of 1933 and the Securities Exchange Act of 1934. The problem became uncovered in the last quarter of 2000 when the distributors refused to purchase more of the product because they already had too much in inventory. Therefore, in December 2000, McAfee reported that revenues would be $190 million less than it projected.

In 2006, the Securities Exchange Commission...