Securities regulators fined Veritas Software Corp. $30 million to settle allegations that the business software maker engaged in an assortment of dirty accounting tricks in the years leading up to its 2005 sale to Symantec Corp.
The civil penalty, disclosed Wednesday by the Securities and Exchange Commission, comes 4½ years after regulators opened an inquiry into a secret deal that Veritas negotiated with Internet service provider AOL in 2000.
That arrangement, involving a quid-pro-quo purchase of software licenses and advertising, improperly boosted the revenue of each company by $20 million. Veritas subsequently lied to its auditors about the back-scratching deal and helped AOL conceal its duplicity, the SEC alleged in its civil complaint.
Veritas erased the gains from the AOL deal, along with two other similar advertising deals that increased revenue by a combined $1 million, in January 2003. By then, AOL had already restated its 2000 results to wipe out improperly recorded advertising revenue from Veritas and several other companies.
AOL’s owner, Time Warner Inc., paid a $300 million fine in 2005 to settle an SEC’s investigation into a broad range of alleged accounting malfeasance.
The SEC’s investigation into Veritas also found that the company manipulated its books during 2001, 2002 and 2003 in an attempt to produce “museum quality” results that would keep investors happy.
The subterfuge included a method of tracking liabilities that didn’t follow generally accepted accounting principles and deferring some revenue from one quarter to the next, the SEC alleged.
The alleged deception in 2001-2003 boosted Veritas’ reported profit by about $15 million. The company restated its results for those three years in March 2004.
No other accounting irregularities cropped up before computer security specialist Symantec bought Veritas in July 2005 for $10.25 billion. Aware that Veritas was in hot water with regulators, Symantec set aside $30 million to cover possible fines.
Although it is on the hook for paying the penalty, Symantec wasn’t named in the complaint. Veritas didn’t acknowledge any wrongdoing in the settlement.
The SEC said it intends to distribute the $30 million fine to investors harmed by Veritas’ alleged misconduct.
While the fine closes the SEC’s investigation into Veritas, regulators still may take action against some of the individuals involved in the alleged accounting ruse, said SEC enforcement attorney Scott Friestad.
Most of Veritas’ alleged abuses occurred while the company’s books were being overseen by Kenneth E. Lochnar, who resigned as chief financial officer in October 2002 after it was learned he had fabricated a Stanford University MBA that he never received.