The Securities and Exchange Commission has settled illegal insider-trading charges with Evan S. Collins, a former finance executive of Network Associates Inc. Once a high-flying technology company, Network Associates is now known as McAfee Inc., after the antivirus software for which it is still well-known.
In September 2000, Collins — who previously had served as the controller of Network Associates — was the vice president and chief financial officer of McAfee, then a Network Associates majority-owned subsidiary. At about that time, according to the SEC, Collins learned that his successor as controller, Terry Davis, had made journal entries in Network Associates’ general ledger that improperly inflated the company’s accounts receivable reserve.
Collins confirmed this information by accessing the Network Associates accounting system from his office computer, added the SEC, and determined that Davis had transferred $15 million from the company’s tax reserve account to an accounts receivable reserve account. According to the commission, Collins knew that the transfer did not conform with generally accepted accounting principles, which would have required that the accounts receivable reserves be increased only by a corresponding reduction to revenue.
The SEC also charged that in October 2000, Collins learned that Davis was warning some of his colleagues that they should sell their Network Associates stock. Based on this and his knowledge of the improper accounting entries, Collins concluded that Network Associates had misstated its financials and might not meet its publicly announced revenue targets for the quarter ending December 31, 2000, the commission added.
The complaint further alleged that on or about November 1, 2000, Collins exercised options on 30,000 shares of Network Associates stock and sold them in advance of Network Associates’ fourth-quarter earnings announcement. On December 26, when Network Associates announced that its sales for the quarter would be only $55 million, about 77 percent below the company’s earlier prediction, the company’s market capitalization fell more than $1 billion.
By trading in advance of the quarterly announcement, Collins realized unlawful profits of $253,125, according to the SEC.
Without admitting or denying the SEC’s allegations, Collins agreed not to serve as an officer or director of a public company. He also agreed to pay fines totaling $569,586, which includes disgorgement of $253,125, prejudgment interest of $63,336, and a civil penalty of $253,125.
In addition, the U.S. Attorney for the Northern District of California filed related criminal charges against Collins. Bill Goodman, an attorney for Collins, told the Associated Press that he expects the criminal charges to be settled as well.
The commission’s action against Collins is its third civil enforcement action related to the accounting fraud at Network Associates; actions are still pending against former controller Terry Davis and former chief financial officer Prabhat Goyal.