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January 5, 2006, 8:00 AM ET, Alert No. 1,283.
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SEC Fines McAfee $50 Million

1/4. The Securities and Exchange Commission (SEC) filed a civil complaint [22 pages in PDF] in U.S. District Court (NDCal) against McAfee (which is also known as Network Associates) alleging violation of federal securities laws in connection with its overstatement of revenues, back in 1998 through 2000. The SEC and McAfee simultaneously settled the case. McAfee will pay a fine of $50 Million. See also, SEC release

McAfee makes antivirus software, and other computer security software and hardware.

The complaint states that "McAfee overstated its revenues by $622 million in order to meet revenue and earnings targets and understated its cumulative net losses by $353 million. McAfee stuffed its distribution channel and improperly recorded hundreds of millions of dollars of revenue on sales transactions with distributors in violation of the antifraud and other provisions of the federal securities laws. In a fraudulent scheme to oversell its products and immediately record the revenue from those transactions, McAfee secretly gave its distributors substantial cash payments, price discounts, rebates, and other concessions as inducements to continue buying, as well as to not return, McAfee products that the distributors had no reasonable expectation of selling to customers."

The complaint also states that McAfee "inflated its revenues in certain quarters during the relevant period by engaging in sham sales transactions that lacked economic substance".

The three count complaint alleges, securities fraud under Section 10b and Rule 10b5, and reporting violations under Section 13(a) of the Exchange Act, and books and records and internal controls violations under Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.

McAfee did not admit any of the allegations contained in the complaint, but consented to the entry of an order that enjoins it from violating the antifraud, books and records, internal controls, and periodic reporting provisions of the federal securities laws, and fines it $50 Million.

In 2003 and 2004 the SEC filed civil fraud actions against three individuals associated with McAfee -- Terry W. Davis, Prabhat K. Goyal, and Evan S. Collins. See, release of June 12, 2003, release of June 16, 2004, and release of November 30, 2004.

This case is SEC v. McAfee, Inc., fka Network Associates, Inc., U.S. District Court for the Northern District of California, San Francisco Division, D.C. No. 06-009 (PJH).

Also on January 4, 2006, the SEC filed and settled an administrative complaint [8 pages in PDF] against Applix, a Massachusetts based maker of business management software. The SEC alleged improper recognition of revenue. Applix admitted nothing, and was not fined. However, it consented to entry of an order that it not violate federal securities laws. See also, Applix release.

SEC Chairman Chris Cox added in a statement that "we will pursue the individuals responsible for the fraud and seek penalties against them in federal court."

The SEC also released a statement that provides some guidance as to how the SEC reaches its penalty determinations in civil fraud actions against securities issuing corporations.

Chris CoxChairman Cox (at left) commented on the SEC's statement. He said that "The Commission is in unanimous agreement that corporate penalties are an essential part of a comprehensive program of enforcement of our securities laws. A key question for us as we explored the appropriateness of imposing civil penalties on a corporation-as opposed to an individual wrongdoer-was whether an issuer's violative action resulted in benefit or harm to the shareholders."

Cox continued that "Other considerations also come into question. One is the deterrent effect of a corporate penalty in a particular case. Others include the level of harm that was inflicted on society; the extent of corporate complicity in the violation; the presence (or absence) of deliberate, intentionally fraudulent conduct; and the extent of corporate cooperation with authorities." (Parentheses in original.)

Inasmuch as corporate penalties could be passed on to shareholders who have already been harmed, Cox added that "is important not to compound the harm already caused to investors".

People and Appointments

1/4. Federal Communications Commission (FCC) Commissioner Deborah Tate named Aaron Goldberger to be one of her legal advisors. He was previously acting Deputy Director of the FCC’s Office of Legislative Affairs. Before that, he was Special Counsel and Legal Advisor in the FCC's Wireless Telecommunications Bureau, where he worked on public safety and critical infrastructure matters. And before that, he worked in the FCC's Wireline Competition Bureau's Competition Policy Division. See, FCC release.

1/4. William Kovacic took the oath of office as a member of the Federal Trade Commission (FTC). See, FTC release.

Gordon England1/4. President Bush gave a recess appointment to Gordon England (at right) to be Deputy Secretary of Defense. See, White House release. Bush nominated England for this position in April of 2005. However, the Senate has not acted on the nomination.

1/4. President Bush gave a recess appointment to Benjamin Powell to be General Counsel of the Office of the Director of National Intelligence. See, White House release.

1/4. President Bush gave a recess appointment to Julie Myers to be Assistant Secretary of Homeland Security for the Bureau of Immigration and Customs Enforcement. He also gave a recess appointment to Tracy Henke to be Executive Director of the Office of State and Local Government Coordination and Preparedness at the Department of Homeland Security (DHS). See, White House release, and statement by Michael Chertoff.

1/4. President Bush gave recess appointments to Robert Lenhard, Steven Walther and Hans Von Spakovsky to be members of the Federal Election Commission (FEC). See, White House release. See also, story titled "Bush Announces FEC Nominations" in TLJ Daily E-Mail Alert No. 1,276, December 20, 2005.

More News

1/4. The White House press office issued a release regarding National Security Agency (NSA) intercepts.

1/5. The Copyright Office published a notice in the Federal Register that announces that it has received from SoundExchange eleven notices of intent to audit eligible nonsubscription and new subscription services that transmit sound recordings under statutory licenses. See, Federal Register, January 5, 2006, Vol. 71, No. 3, at Pages 624 - 625.

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Washington Tech Calendar
New items are highlighted in red.
Thursday, January 5

The House will not meet. It will convene for the 2nd Session of the 109th Congress on Tuesday, January 31, 2006.. See, Majority Whip's calendar.

The Senate will not meet. It will convene for the 2nd Session of the 109th Congress on Wednesday, January 18, 2006. See, 2006 Senate calendar.

2:00 PM. Jim Williams, Director of the Department of Homeland Security's (DHS) US-VISIT program will hold a media roundtable on titled "2005 Accomplishments". The DHS notice states that "Media wishing to attend this event must present valid press credentials and arrive NO LATER than 1:30 PM EST". Location: 1616 N. Ft. Myer Drive, Arlington, VA.

Friday, January 6

12:00 NOON. The Federal Communications Bar Association's (FCBA) Wireless Telecommunications Practice Committee will host a lunch. There will be a debate regarding municipal WiFi networks between Tom Lenard (Progress & Freedom Foundation) and Harold Feld (Media Access Project). See, registration form [PDF]. The price to attend is $15. Location: Sidley Austin, 1501 K Street, NW.

4:00 - 7:00 PM. The International Trademark Association (INTA) will host a symposium titled "Should Parma be a Trademark? Issues Surrounding Geographical Marks and Indicators". The speakers will be Roger Schechter (George Washington University Law School), Lionel Bently (University of Cambridge), Min-Chiuan Wang (Institute of Technology Law, National Chiao-Tung University in Taiwan), and Glynn Lunney (Tulane University School of Law). See, notice. Location: __.

Deadline to submit reply comments to the Office of the U.S. Trade Representative (USTR) regarding the operation, effectiveness, and implementation of and compliance with (1) the World Trade Organization (WTO) agreements affecting market opportunities for telecommunications products and services of the U.S., (2) the telecommunications provisions of the North American Free Trade Agreement (NAFTA), (3) the U.S. free trade agreements (FTAs) with Chile, Singapore, and Australia, and (4) any other FTAs coming into effect by January 1, 2006. See, notice in the Federal Register, November 16, 2005, Vol. 70, No. 220, at Pages 69621 - 69622.

Monday, January 9

12:00 NOON. The Senate Judiciary Committee (SJC) will begin its hearings on the nomination of Judge Sam Alito to be a Justice of the Supreme Court. Location: Room 216, Hart Building.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Sharp Kabushiki v. ThinkSharp, Inc., No. 05-1220. This is a dispute regarding registration of the mark "Thinksharp" for computer software by ThinkSharp, Inc. Sharp, which makes electronics products, objects. Location: Courtroom 201, 717 Madison Place, NW.

The Federal Communications Commission (FCC) will begin a mock auction for its FM Broadcast Construction Permits Auction (Auction No. 62). See, Public Notice [PDF] numbered DA 05-3204, and dated December 21, 2005.

Tuesday, January 10

9:00 AM. The President's Council of Advisors on Science and Technology (PCAST) will hold an open meeting. The tentative agenda for this meeting includes a presentation on the Federal Networking and Information Technology Research and Development (NITRD) program, an update on nanotechnology, and a briefing on the U.S.-China S&T Forum. See, notice in the Federal Register, December 23, 2005, Vol. 70, No. 246, at Page 76286. Location: Washington Room, Hotel Washington located at 515 15th St., NW.

10:00 AM. The Supreme Court will hear oral argument in Texaco v. Dagher and Shell v. Dagher. This case involves the application of antitrust law to lawful joint ventures. See, story titled "Supreme Court Grants Certiorari in Dagher" in TLJ Daily E-Mail Alert No. 1,163, June 28, 2005, and story titled "Verizon Seeks Reversal in Texaco v. Dagher" in TLJ Daily E-Mail Alert No. 1,232, October 12, 2005. See also, Supreme Court docket.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Microchip Technology v. Chamberlain Group, No. 05-1339. Location: Courtroom 402, 717 Madison Place, NW.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Resonate, Inc. v. Alteon Websystems, No. 05-1336. This is a patent case involving internet traffic routers and switches. See also, Resonate, Inc. v. Alteon Websystems, Inc., 338 F.3d 1360 (Fed. Cir. 2003). Location: Courtroom 201, 717 Madison Place, NW.

Wednesday, January 11

12:00 NOON - 1:30 PM. The DC Bar Association's Intellectual Property Law Section will host a panel discussion titled "Post-Grokster: What the Supreme Court Decision Means to You and Your Clients". The speakers will include John Hornick (Finnegan Henderson). The price to attend ranges from $20-$40. For more information, call 202 626-3463. See, notice. Location: D.C. Bar Conference Center, 1250 H Street NW, B-1 Level.

12:15 PM. The Federal Communications Bar Association's (FCBA) Transactional Practice Committee will host a brown bag lunch regarding the "Implications of the recent Media Bureau decisions rescinding grants of assignment/transfer of control applications after the parties have closed". For more information, contact Howard Liberman at hliberman at dbr dot com. Location: __.

2:00 - 4:00 PM. The Department of State's International Telecommunication Advisory Committee (ITAC) will hold the first in a series of weekly meetings to prepare for the International Telecommunications Union's (ITU) 2006 ITU Plenipotentiary Conference, to be held November 6-24, 2006, in Antalya, Turkey. See, notice in the Federal Register, December 21, 2005, Vol. 70, No. 244, at Page 75854. This notice incorrectly states that these meetings will be held on Tuesdays; they are on Wednesdays. For more information, contact Julian Minard at 202 647-2593 or minardje at state dot gov. Location: AT&T, 1120 20th St., NW.

Deadline to submit reply comments to the Federal Communications Commission (FCC) regarding the petition for declaratory ruling (DR) filed by Grande Communications that seeks a DR regarding the treatment of traffic terminated through Grande to end users of interconnected local exchange carriers (LECs), in circumstances where customers of Grande have certified that the traffic originated in Internet protocol (IP) format. See, notice in the Federal Register, November 2, 2005, Vol. 70, No. 211, at Pages 66411 - 66412. See also, story titled "FCC Sets Comment Deadlines for DR Petition on IP Originated VOIP Traffic and Intercarrier Compensation" in TLJ Daily E-Mail Alert No. 1,246, November 3, 2005. This proceeding is WC Docket No. 05-283.

Deadline to submit to the Department of Commerce's Technology Administration nominations of individuals to serve on the National Medal of Technology Nomination Evaluation Committee. See, notice in the Federal Register, December 12, 2005, Vol. 70, No. 237, at Page 73453.

Thursday, January 12

The Federal Communications Commission (FCC) will begin its FM Broadcast Construction Permits Auction (Auction No. 62).  See, Public Notice [PDF] numbered DA 05-3204, and dated December 21, 2005.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Jan Voda v. Cordis Corporation, App. Ct. No. 05-1238. This is a patent dispute arising in the U.S. District Court (WDOkla), D.C. No. 03-CV-1512. The issue is whether the District Court has supplemental jurisdiction over foreign patent infringement claims in a U.S. patent infringement action under 28 U.S.C. § 1367(a). See, amicus brief [PDF] of the AIPLA, and amicus brief [35 pages in PDF] of the IPO. Location: Courtroom 402, 717 Madison Place, NW.

6:00 - 9:15 PM. The DC Bar Association will host a continuing legal education (CLE) seminar titled "Patent Law for Non-Patent Lawyers". The speakers will include Jacqueline Bonilla (Foley & Lardner) and Elizabeth Brenner (Rothwell Figg Ernst & Manbeck). The price to attend ranges from $70-$125. For more information, call 202 626-3488. See, notice. Location: D.C. Bar Conference Center, 1250 H Street NW, B-1 Level.

Day one of a two day conference hosted by the National Institute of Standards and Technology's (NIST) Intelligent Systems Division and the Defense Advanced Research Projects Agency (DARPA) titled "Evaluating Cognitive Systems Workshop". This conference is closed to the public. See, notice. Location: NIST, Building 101, Lecture Room A, 100 Bureau Drive, Gaithersburg, MD.