Network Associates Discloses Investigation by Justice Department

Network Associates Inc., a security software company under investigation by the Securities and Exchange Commission, said Wednesday that the Justice Department also had launched a probe against it, sparking a drop in its shares.

Chief Executive George Samenuk said Network Associates learned about the Justice Department investigation this quarter, although he declined to give any details.

The Justice Department “is involved at this point,” Samenuk told analysts in a conference call. “They do have a different role than the SEC in this matter. I’m not going to comment on the scope of their investigation.”

Earlier Wednesday, Network Associates said it would delay the filing of its 2002 annual financial statement and restate its results for 1998 through 2000 for the second time.

The company said it decided to restate the results because of information that came to light during the SEC and Justice Department investigations.

It said the restatement would reflect revenue on sales to distributors and also may include other matters addressed by the government investigations. It would not disclose what the other matters were.

“There was a bad vibe all over the place,” said Tim Leehealey, an analyst with Wedbush Morgan in Los Angeles, who said he was surprised the company had not disclosed the Justice Department investigation earlier.

“If they knew about this more than a month ago, they might have announced it at the time. This is very material information,” he said.

Network Associates shares fell as low as $14.50 after it disclosed the investigation. The shares ended the day down 53 cents to $14.85 on the New York Stock Exchange.

The problems started for Santa Clara, Calif.-based Network Associates in December 2000, when the company issued a profit warning and abruptly announced the resignation of its three top executives.

Samenuk joined a month later and instigated a total shake-up of management, including a new financial team, new heads of geographic regions and business units, an internal auditor, a new treasurer and a new controller.

In March 2002, however, the company disclosed it was under investigation by the SEC. It said at the time that it believed the probe related to the way it booked revenue in periods before Samenuk took over.

Network Associates said it would file the 2002 financial statement incorporating the restated financials for 2000, 1999 and 1998 “as promptly as reasonably possible.”