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U.S. Securities and Exchange Commission


Release No. 46895 / November 25, 2002

File No. 3-10948

In the Matter of






The Securities and Exchange Commission ("Commission") deems it appropriate that public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Secure Computing Corporation ("Secure" or the "Company") and John McNulty ("McNulty") (collectively, the "Respondents"), to determine whether Secure and McNulty, respectively, violated and caused violations of Section 13(a) of the Exchange Act and Regulation FD.


In anticipation of the institution of these proceedings, Respondents have submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, Respondents consent to the entry of the Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934, as set forth below.


On the basis of this Order and the Respondents' Offer, the Commission finds that:

A. Nature of Proceeding

1. In early March 2002, Secure Computing Corporation, a Silicon Valley software company, and its Chief Executive Officer ("CEO"), John McNulty, disclosed material non-public information about a significant contract to two portfolio managers at two institutional advisers in violation of Regulation FD, which requires disclosures of material, non-public information to be made to the marketplace as a whole. Following the disclosures, Secure announced the contract to the public in a press release issued after the close of the stock markets. However, investors who sold Secure stock prior to the Company's press release were denied information that may have affected their investment decisions.

B. Respondents

2. Secure is a Delaware corporation with its principal place of business in San Jose, California. The Company's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and is quoted on the NASDAQ Stock Market under the symbol "SCUR." The company reported revenue of $52.5 million for the year ended December 31, 2001.

3. McNulty, 55, has been the CEO and Chairman of the Board of Secure since July 1999. He also served as President and Chief Operating Officer between May 1999 and approximately July 1999.

C. Background

4. Secure is a Silicon Valley software company specializing in Internet security-related products.

5. In early 2002, Secure entered into an original equipment manufacturing ("OEM") agreement with one of the nation's largest computer networking companies (the "buyer"). The buyer agreed to bundle one of Secure's products (the "product") with the buyer's network systems. Neither the buyer nor Secure made any public announcement of the arrangement. The agreement required the buyer's consent before Secure could announce the deal. The buyer's consent was contingent upon its sales force selling the product to "beta" customers who would test the product and provide feedback and customer testimonials that could be used in a press release.

6. Later in 2002, the buyer posted an electronic user manual containing technical information about the product on the buyer's website for use by its sales force and beta customers.

7. In early March 2002, Secure held an executive staff meeting, in which McNulty participated by telephone. At that meeting, Secure executives expressed concern that news of the OEM agreement might begin to leak to the public because the buyer's sales force was selling the product to beta customers. As a result, Secure management decided to press the buyer to proceed with a public announcement of the OEM agreement as soon as possible.

8. On March 6, at the buyer's request, Secure posted a page on its own website providing information and software downloads for the buyer's sales force and for customers who were evaluating the product. Secure's main website page did not reference the deal or provide a link to this web address. As of March 6, 2002, McNulty knew that neither the buyer nor Secure had issued a public announcement of the OEM agreement.

D. McNulty's March 6 Disclosures

9. Secure actively promotes its stock to institutional investors through in-person presentations and a program of conference calls with broker-dealers, investment advisers and other organizations. McNulty plays a key role in these promotions, making many of the presentations and conference calls.

10. On Wednesday, March 6, McNulty conducted a conference call with a portfolio manager at an investment advisory firm. A salesperson at a brokerage firm that follows Secure arranged and attended the call. McNulty took the call from his home. In addition, Secure's Director of Investor Relations ("IR Director") participated in the conference call from her office.

11. During the call, McNulty was asked questions concerning the product. McNulty then asked the IR Director whether he could discuss something that had been posted on the Company's and its new partner's website; at that point, McNulty did not identify the buyer by name. The IR Director, apparently unaware that McNulty was referring to the deal with the buyer, confirmed that he could.

12. McNulty then told the portfolio manager and brokerage firm salesperson that Secure had entered into a deal with the buyer to sell the product, identifying the buyer by name. McNulty also said that there was information on both Secure's and the buyer's websites and provided the Secure web page address describing the buyer's integration of the product. As McNulty spoke, the IR Director recognized that the OEM agreement had not been publicly announced and that McNulty should not be discussing the subject, but she did not interrupt McNulty.

13. McNulty's disclosure was the first time the salesperson from the brokerage firm had heard about the OEM agreement regarding the product. While still on the call, the salesperson looked up the web page and then e-mailed the Secure web page address to the brokerage firm's sales force.

14. The conference call ended around 11:00 a.m. (PST). As soon as the call ended, the IR Director attempted to reach McNulty and left him a voicemail message informing him that he had disclosed nonpublic information during the conference call.

15. Before he listened to the IR Director's voicemail message, McNulty received an e-mail message from a managing partner of the brokerage firm asking about the deal. McNulty sent an e-mail response providing Secure's web page address for the product integration. McNulty further wrote, "There won't be a[n] announcement/press release until [the buyer] has some customer references - bottom line though it ain't bad!!!!!!"

16. Shortly after sending the e-mail response - at approximately noon PST - McNulty retrieved the IR Director's voicemail message. McNulty then telephoned the managing partner of the brokerage firm and requested that the information be kept confidential.

17. Secure made no general public announcement of the software agreement on March 6. Secure's stock closed at $17.40 per share on that day, an increase of 8% over the previous day's close, on trading volume that was more than double that of the day before.

E. McNulty's March 7 Disclosure

18. On the morning of March 7, trading volume in Secure's stock rose significantly, and Secure received several calls from investors and analysts inquiring into rumors about an OEM deal. Secure's management (including McNulty) determined that it would have to issue a press release as soon as possible, and set about trying to obtain the buyer's consent to a public announcement. Secure did not inform the buyer of Secure's prior disclosure. The buyer did not agree to the issuance of a press release.

19. Meanwhile, also on March 7, McNulty conducted conference calls with four additional institutional investors. On March 7, at around 10:15 a.m. (PST), during the fourth call, a portfolio manager of another institutional advisory firm asked McNulty about the OEM agreement with the buyer. McNulty confirmed that Secure had a deal with the buyer under which the buyer would integrate Secure's product into the buyer's product. McNulty further explained that the deal had not yet been publicized because the buyer needed to obtain customer references first, but that he anticipated an announcement shortly.

20. Secure's stock price closed at $18.55 per share on March 7, a 7% rise from March 6 on volume that was 130% higher.

F. The March 7 Public Announcement

21. On March 7 at 1:40 p.m. (PST), following the market close, Secure issued a press release announcing the OEM agreement. On the day following the press release, Friday, March 8, the stock price rose another 7% on continued high volume. The following Monday, March 11, the stock price continued to rise, closing at $21.81 - the highest close since early January 2002. All told, Secure's stock price rose 35% between March 5 and March 11. Secure did not issue any other significant announcements during this period.

G. Secure Violated, and McNulty Caused the Violation of, Regulation FD

22. The information that Secure and McNulty selectively disclosed concerning the OEM agreement on March 6 and 7 was material and nonpublic.

23. The March 6 disclosures were non-intentional. Thus, Secure needed to make prompt public disclosure of the information concerning the OEM agreement. However, on March 7, three hours before issuing a press release, Secure and McNulty again selectively disclosed the information. The March 7 selective disclosure violated Regulation FD because Secure and McNulty failed to make simultaneous public disclosure of the information to the public.

24. Secure violated, and McNulty was a cause of Secure's violation of, Section 13(a) of the Exchange Act and Regulation FD.


In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in the Respondents' Offer.


A. Pursuant to Section 21C of the Exchange Act, Respondent Secure shall cease and desist from committing or causing any violations and any future violations of Section 13(a) of the Exchange Act and Regulation FD; and

B. Pursuant to Section 21C of the Exchange Act, Respondent McNulty shall cease and desist from causing any violations and any future violations of Section 13(a) of the Exchange Act and Regulation FD.

By the Commission (Commissioner Campos dissenting as to the lack of a penalty).

Jonathan G. Katz


Modified: 11/25/2002