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U.S. Securities and Exchange Commission


Litigation Release No. 20008 / February 21, 2007

Accounting and Auditing Enforcement Release No. 2562 / February 21, 2007

SEC v. Veritas Software Corporation, Civil Action No. 07-364 (D.D.C.)

SEC Files Settled Enforcement Action Against Veritas Software Corporation

The Securities and Exchange Commission announced that it filed yesterday a settled civil fraud action in the United States District Court for the District of Columbia against Veritas Software Corporation, alleging in its complaint that Veritas engaged in a fraudulent earnings management scheme and filed false and misleading financial statements from 2000 through 2003. Veritas was also charged with securities fraud in connection with an improper round-trip transaction in 2000 with America Online, Inc. (AOL), now a division of Time Warner Inc., as well as aiding and abetting AOL's securities fraud. In settling the Commission's charges, Veritas agreed to an injunction and to pay a $30 million civil penalty, which the Commission will seek to distribute to harmed investors pursuant to the Fair Funds provision of the Sarbanes-Oxley Act of 2002. Veritas was acquired by Symantec Corporation on July 2, 2005.

The Commission's complaint against Veritas includes the following allegations:

  • In the fourth quarter of 2000, Veritas artificially inflated reported revenues in connection with a $20 million transaction with AOL and smaller transactions with two other Internet companies. In the three round-trip transactions, Veritas agreed to "buy" online advertising in exchange for the customer's agreement to purchase software from Veritas at inflated prices. To conceal the true nature of the AOL transaction, the company structured and documented the round-trip as if it was two separate, bona fide transactions, conducted at arm's length and reflecting each party's independent business purpose. In addition, the company lied to and withheld material information from its independent auditors about the AOL transaction and the other two transactions.
  • AOL improperly recognized revenue on the round-trip transaction and reported materially misstated financial results to its own investors. Through its conduct, Veritas aided and abetted AOL's fraud.
  • During 2000 through 2002, Veritas engaged in three improper accounting practices to manage its earnings and artificially smooth its financial results. Specifically, Veritas improperly (a) recorded and maintained excess accrued liabilities, employing "accrual wish lists" and "cushion schedules"; (b) stopped recognizing professional service revenue it had fully delivered and earned upon reaching internal targets; and (c) inflated its deferred revenue balance. As with the round-trips, the company took concerted steps to conceal these improper practices from its independent auditors.

Without admitting or denying the allegations in the Commission's complaint, Veritas has consented to the entry of a final judgment permanently enjoining it from violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (the "Exchange Act"), Exchange Act rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13 and 13b2-1 and from aiding and abetting violations of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5.

The corporate penalty in this case was negotiated before the Commission issued its Statement Concerning Financial Penalties (http://www.sec.gov/news/press/2006-4.htm). The Commission therefore elected not to apply that Statement to this corporate penalty.

The Commission's investigation into these matters continues.

SEC Complaint in this matter



Modified: 02/21/2007