Software Case Highlights Criminal Exposure for Revenue Recognition of Software Sales

Former chief financial officer of Network Associates, Inc. (“NAI”), appeals his convictions for securities fraud and making materially false statements to auditors. The government alleged that NAI, under CFO’s supervision, violated generally accepted accounting principles (“GAAP”) by recognizing revenue from certain software sales earlier than it should have. CFO was indicted for concealing the allegedly improper accounting from NAI’s outside auditors and for filing reports with the Securities and Exchange Commission that, because of NAI’s accounting, allegedly misstated revenue in certain reporting periods between 1998 and 2000. CFO argued that no jury could have found him guilty beyond a reasonable doubt, as the jury did, based on the evidence the prosecution presented at trial. The court agreed and reversed the convictions on all counts.

Read more about the case here.

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