United States v. Goyal
2010 U.S. App. LEXIS 25223
| 9th Cir. | 2010Background
- Goyal, former CFO of Network Associates (NAI), was convicted of securities fraud and lying to auditors over revenue recognition prior to 1998–2000.
- NAI used sell-in accounting for large end-quarter deals with distributor Ingram Micro, including buy-in transactions to boost quarterly revenue.
- NAI also used NetTools to repurchase some sold product; the government challenged whether these arrangements created significant GAAP obligations.
- GAAP guidance at issue included FAS 48 and SOP 97-2; materiality of any revenue misstatement and whether disclosures to PwC were truthful were central.
- The government argued the buy-in terms, reserves, and disclosures inflated revenue and misled investors and auditors.
- On appeal, the Ninth Circuit reversed all counts, finding no substantial proof of materiality or willful deception.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Materiality of GAAP misstatements for SEC counts | Government argued misstatements materially altered investor view. | Goyal argued no evidence showed material impact on total revenue. | Materiality not proven; acquittal required |
| Willful/knowing misrepresentation to auditors regarding NetTools | Government asserted NetTools commitments violated GAAP and were knowingly misrepresented. | Goyal contended no proof of willful deception; alternative explanations exist. | No willful/knowingly false statements proved |
| Disclosure of sales terms to PwC | Goyal withheld buy-in letters; representations to PwC were false or misleading. | PwC had access to debit memos; disclosures could be adequate under good faith interpretation. | Total evidence insufficient of willful concealment; convictions reversed |
Key Cases Cited
- Basic Inc. v. Levinson, 485 U.S. 224 (U.S. 1988) (materiality requires substantial likelihood of altered total mix)
- United States v. Smith, 155 F.3d 1051 (9th Cir. 1998) (fraud elements under 10(b) require misstatement with scienter)
- United States v. Nevils, 598 F.3d 1158 (9th Cir. 2010) (materiality and sufficiency review applying Jackson v. Virginia standard)
- United States v. Tarallo, 380 F.3d 1174 (9th Cir. 2004) (willfulness and knowledge required for criminal fraud)
- United States v. Reyes, 577 F.3d 1069 (9th Cir. 2009) (statutory and mens rea considerations in fraud prosecutions)
- United States v. Dinkane, 17 F.3d 1192 (9th Cir. 1994) (reaffirmed evidence sufficiency and reasonable-inference standard)