Network Associates Accounting Under Investigation

Network Associates Inc. disclosed Tuesday that the federal government is investigating the accounting methods employed by the Internet security company in 2000.

The inquiry also is forcing Network Associates to delay its bid to acquire the 25% of computer virus-fighter McAfee.com that it does not already own. Shares of both companies fell more than 10%.

Network Associates said the Securities and Exchange Commission is examining practices that led to three major events Dec. 26, 2000. That day, Network Associates’ three top executives resigned, the company announced a massive revenue and profit shortfall and it changed how it recognized revenue for products sold through third-party distributors.

Chief Executive George Samenuk said the inquiry is focusing on issues that predate his management team. But he said the 2000 accounting practices have been reviewed and approved again by the company’s outside auditor, PricewaterhouseCoopers.

“We believe the books are proper,” Samenuk said during a conference call with analysts.

He said the SEC probe would have no effect on the firm’s daily operations or future opportunities.

However, it is forcing the company to postpone its bid to buy the remaining stock of McAfee.com, the company spun off from Network Associates in 1999. McAfee executives have called Network Associates’ offer too low.

The firm has turned its fortunes around since the management upheaval and financial disclosure of late 2000. It lost $99 million last year on sales of $834 million but achieved pro forma profitability and a recovery in its stock price.

Network Associates shares fell 11%, or $2.77, to $22.23. McAfee.com shares fell 16%, or $2.96, to $15.55.

The SEC had no comment on the Network Associates investigation.