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Computer security giant Network Associates said Tuesday that the U.S. Securities and Exchange Commission (SEC) is investigating its accounting practices.

The announcement comes after antivirus vendor McAfee.com rejected the network security giant's initial bid to buy out the portion of McAfee it does not already own.

Santa Clara, California-based Network Associates said the SEC probe centers on accounting issues from fiscal 2000 -- prior to current senior management's arrival early last year. However, the formal investigation will mean a postponement of the company's efforts to acquire the rest of McAfee. Network Associates already owns about 75 percent of the antivirus company.

"We have reviewed the company's accounting for fiscal 2000, and we continue to believe that our accounting was proper," Network Associates chairman and CEO George Samenuk said in a conference call.

News source: NewsFactor - Virus Buster Network Associates Under Fire

Rough Week

Word of the SEC probe came just days after McAfee rejected Network Associates' bid to take full ownership of the company as "financially inadequate."

A special committee of McAfee's board of directors said Network Associates' offer "significantly undervalues the long-term value inherent in McAfee.com as a standalone company and its unique market position and business opportunities."

Network Associates officials said they would have to review a proposed stock deal to fully acquire McAfee after SEC issues are resolved.

'Murky Day'

Network Associates said that based on its conversations with the SEC, it believes the formal investigation stems from a series of events and announcements on December 26, 2000, which Samenuk called "a murky day."

Samenuk said three things announced that day -- the resignation of the company's top three executives, changes in its channel sales policy and a significant quarterly shortfall -- are at the root of the SEC probe.

"We believe they are looking at December 26th and all of 2000 to see if everything was accounted for properly," Samenuk said.

Going Formal

In addition to pending shareholder lawsuits accusing the company of improper financial reporting, Network Associates said the SEC has been informally investigating its accounting procedures on the heels of the December 26th announcements.

"We don't have any information on what triggered them to go formal," said Network Associates executive vice president and general counsel Kent Roberts.

The company said it has reviewed its fiscal 2000 accounting with auditor PricewaterhouseCoopers and believes it was proper.

Zero Effect

While Network Associates said it intends to cooperate with the SEC to bring the investigation to a conclusion as quickly as possible, Samenuk added that the company does not expect the probe will hurt it.

"We do not expect this to have any effect on our day-to-day operations, our current business or our future growth opportunities," Samenuk said.

However, the impact of the SEC's "formal order of private investigation," which Network Associates learned of Friday, was visible in the security company's stock price, which dropped more than 10 percent Tuesday.

Comfort in Technology

Giga Information Group industry analyst Jan Sundgren told NewsFactor that the speculation and rumors surrounding Network Associates' past accounting procedures are nothing new.

"This is old stuff," he said.

Sundgren noted that despite the SEC investigation and its outcome, Network Associates likely will continue to be a solid company and a major force in computer security.

"On the technological side, they're strong, which is a good thing for their customers and for them doing well in the long run," Sundgren said.