By David Scheer
Ingram Micro Inc., the world’s biggest distributor of computer equipment, will forfeit $15 million to settle a U.S. regulator’s claims over the Santa Ana, California, firm’s role in McAfee Inc.’s accounting fraud.
Ingram, McAfee’s largest customer, collected millions of dollars while engaging in “highly irregular transactions” from 1998 to 2000, the Securities and Exchange Commission said today in a statement. The regulator faulted Ingram for failing to keep accurate records and lacking adequate internal controls.
McAfee reached a $50 million settlement with the SEC in 2006 after the agency accused the anti-virus software maker of inflating net revenue by $622 million over three years. The company engaged in “channel-stuffing,” selling distributors more products than they needed, booking revenue and offering incentives to keep inventory from being returned, the SEC said.
Ingram Micro, McAfee’s biggest distributor at the time, collected “unearned profits,” cash payments and improperly recorded fees, the SEC said. The company didn’t “fairly and accurately” record some transactions, and inadequate controls failed to alert senior managers to the dealings.
The distributor sought to benefit from McAfee’s willingness to make payments for increasing amounts of unneeded products, the SEC said. Ingram Micro employees ignored internal goals of carrying no more than eight weeks of inventory, accruing a 22- month supply. It later reduced the stockpile by engaging in circular transactions with McAfee that lacked “economic substance,” the regulator said.
No Earnings Impact
Ingram Micro didn’t admit or deny wrongdoing. It said in a statement that it previously set aside money to cover costs from the inquiry and that the settlement “should not have an impact” on earnings in 2009.
“Ingram Micro has instituted far more rigorous controls and standards than those in place when these events occurred 9 to 11 years ago, significantly improving our policies with vendors,” it said. “We’re glad to put this issue behind us.”
McAfee, formerly known as Network Associates, disclosed a sales shortfall on Dec. 27, 2000, sending its stock tumbling 61 percent to $4.50, the biggest one-day drop since the shares were first sold to the public in 1992. The Santa Clara, California- based company later restated earnings for the affected years. It didn’t admit or deny wrongdoing when settling with the SEC.
To contact the reporter on this story: David Scheer in New York at dscheer@bloomberg.net.
Too many news about Mcafee, I guest that's really the life of being "No.1"..
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