November 15, 2002 3:36 PM PST

Veritas shares swoon on SEC probe

Veritas saw its shares sink 8 percent Friday on news that the Securities and Exchange Commission subpoenaed information from the storage-software maker three months ago as part of an investigation into AOL Time Warner.

Regulators are looking into AOL's $50 million purchase of Veritas Software and support and $20 million in ads Veritas bought, deals that took place in the fourth quarter of 2000. "We are currently reviewing our accounting treatment for these transactions, focusing on the $20 million of advertising services expense and $20 million of the revenue," Veritas said in a quarterly filing with the SEC Thursday.

Shares in Mountain View, Calif.-based Veritas dropped $1.50, or 8 percent, to $16.75 on the news.

Some analysts criticized the software maker for not disclosing its involvement in the investigation earlier.

"Veritas has been involved in the SEC investigation for three months and is only now informing investors of the probe," said R.W. Baird securities analyst Daniel J. Renouard in a Friday report. "We view the lack of timely disclosure in this matter as objectionable and believe management credibility questions will continue to weigh on the stock."

The SEC is investigating AOL Time Warner over accounting practices. AOL Time Warner has restated earnings, eliminating $190 million in revenue over a 21-month period, as a result of the regulators' probe and of its own investigation.

Renouard noted that Veritas had several opportunities to inform investors of the SEC probe, such as when it was revealed that its former Chief Financial Officer Kenneth E. Lonchar had lied about receiving a master's degree in business administration from Stanford University or when the company announced its third-quarter earnings.

Veritas said it booked $37 million of the $50 million license deal with AOL Time Warner in the fourth quarter of 2000, with $13 million booked gradually since then over a three-year support period.

 

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