In re INGRAM MICRO INC.

 
 
 
 
                                                 UNITED                                                 STATES OF AMERICA 
                                                                     Before                                                                     the                                                                     
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 59903 / May 12, 2009 
 
ACCOUNTING AND AUDITING ENFORCEMENT 
Release No. 2968 / May 12, 2009 
 
ADMINISTRATIVE PROCEEDING 
File No.  3-13466 
 
 
In the Matter of 
 
INGRAM MICRO INC.,  
 
Respondent. 
 
 
 
ORDER INSTITUTING CEASE-AND-DESIST 
PROCEEDINGS PURSUANT TO SECTION 
21C OF THE SECURITIES EXCHANGE ACT 
OF 1934, MAKING FINDINGS, AND 
IMPOSING A CEASE-AND-DESIST ORDER  
   
 
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
Exchange Act of 1934 (“Exchange Act”), against Ingram Micro Inc. (“Ingram Micro” or 
“Respondent”).   
 
II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “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 it and the subject matter of these 
proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.   
 
 

 
2
 
III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 
 
Summary
 
 
 These proceedings arise out of the business dealings between Ingram Micro and McAfee, 
Inc., formerly known as Network Associates, Inc. (referred to herein as “McAfee”) during the 
period from the second quarter of 1998 through the third quarter of 2000 when McAfee was 
engaged in a massive financial fraud.  During that period, McAfee overstated its revenues and 
earnings by stuffing its distribution channel at Ingram Micro with levels of inventory far in excess 
of any reasonable expectation of sales to end users while misreporting its revenues from these sales 
to their distributors.
2
  For its part, Ingram Micro, McAfee’s largest customer and greatest single 
source of revenue, engaged in a variety of highly irregular transactions with McAfee, many of 
them lacking in economic substance, which enabled McAfee to continue overselling its products to 
Ingram Micro.  In the course of its business dealings with McAfee, Ingram Micro failed to keep 
accurate books and records and failed to devise and maintain an adequate system of internal 
controls.  Ingram Micro was compensated by McAfee for engaging in these irregular transactions 
through the payment of millions of dollars of unearned profits, cash payments, and improperly 
recorded excess inventory fees.   
 
Respondent
 
 
1. Respondent Ingram Micro Inc. is a Delaware corporation with its principal office in 
Santa Ana, California.  Ingram Micro is a technology distribution company.  Ingram Micro’s 
common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act 
and is listed on the New York Stock Exchange under the symbol “IM.” 
  
Other Relevant Entity
 
 
 2. McAfee, Inc. is a Delaware corporation with its principal office in Santa Clara, 
California.  McAfee is a manufacturer of computer programs focusing on network security, anti-
virus, and network management products.  McAfee’s common stock is registered with the 
Commission pursuant to Section 12(b) of the Exchange Act and is listed on the New York Stock 
Exchange under the symbol “MFE.”  Prior to June 30, 2004, McAfee was known as Network 
Associates, Inc. 
 
                                                
 
1
 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding 
on any other person or entity in this or any other proceeding.
  
2
 On January 4, 2006, the Commission filed a settled civil injunctive action against McAfee, Inc., in which 
McAfee agreed to be permanently enjoined from violations of the anti-fraud, books and records, and internal 
controls provisions of the Exchange Act.  McAfee also consented to the entry of a permanent injunction and the 
payment of a $50 million civil penalty.  SEC v. McAfee, Inc., Civil Action No. 06-009 (PJH) (N.D. Cal.); Lit. Rel. 
No. 19520 (Jan. 4, 2006).  
 

 
3
Facts 
 
Background
 
 
3. Between 1998 and 2000, McAfee overstated its revenues by $622 million in order 
to meet revenue and earnings targets, and understated its cumulative net losses by $353 million.  
As the Commission alleged in its January 2006 complaint:  
 
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. 
 
In addition, the Commission’s complaint alleged that McAfee concealed its scheme by “falsely 
record[ing] in its books and records certain of the payments and concessions to distributors,” and 
that McAfee “misled investors by filing with the Commission materially false and misleading 
annual and quarterly reports and securities registration statements.”  As a result, McAfee violated 
antifraud, issuer reporting, books and records, and internal controls provisions of the securities 
laws.  In settlement, McAfee agreed to a permanent injunction and paid a $50 million civil penalty. 
  
4. During the period of McAfee’s misconduct, Ingram Micro was McAfee’s largest 
distributor and single most significant source of sales.
3
  In 1998, McAfee changed its accounting 
method to the “sell-in” model, which allowed it to recognize revenue upon the sale of products to 
distributors like Ingram Micro, instead of deferring revenue recognition until its products had been 
sold to end-users.  Taking advantage of the change to sell-in accounting, McAfee embarked on a 
scheme to meet quarterly revenue targets through “channel stuffing” – that is, by pushing excessive 
amounts of products to its distributors, particularly Ingram Micro.  End-of-quarter sales to Ingram 
Micro (memorialized in so-called “buy-in agreements” that were negotiated quarterly between the 
two companies), in particular, had a significant impact on McAfee’s reported revenues and its 
ability to meet market expectations.   
 
5. Ingram Micro’s written contract with McAfee expressly limited Ingram Micro’s 
ability to return products.  However, McAfee and Ingram Micro had an unwritten understanding 
that Ingram Micro had an unlimited right to return unsold products to McAfee.  During this period, 
few vendors extended unlimited return rights to their distributors, but McAfee offered unlimited 
return rights to Ingram Micro in order to induce Ingram Micro to purchase additional product.   
 
                                                
 
3
  In the year 2000, for example, sales to Ingram Micro accounted for approximately twenty percent 
of McAfee’s net revenue. 
 

 
4
6. Starting in the second quarter of 1998, Ingram Micro’s Product Management Group 
realized that McAfee was willing to provide deep discounts and off-contract enhancements to 
Ingram Micro in the quarterly “buy-in agreements.”  As a result, Ingram Micro altered its buying 
practices and began ordering extraordinarily large amounts of McAfee products, far in excess of 
the amounts that Ingram Micro reasonably expected to sell.  Ingram Micro began to realize 
significantly higher profit margins in return for taking on excess inventory from McAfee, which 
consisted mainly of software licenses.  In return for Ingram Micro’s increased purchases, McAfee 
provided various forms of compensation – in the form of cash payments, price concessions, and 
allowances for unlimited returns – that made Ingram Micro’s role in McAfee’s channel-stuffing 
scheme highly profitable and low-risk.   
 
7. The McAfee account rapidly became one of Ingram Micro’s most profitable vendor 
relationships, despite the fact that McAfee represented a small percentage of Ingram Micro’s total 
sales.  Ingram Micro obtained extraordinary profit margins on its business with McAfee compared 
to its other vendors because, unlike other vendors, McAfee routinely provided Ingram Micro with 
nonrefundable discounts on Ingram Micro’s orders of McAfee products.  Ingram Micro retained 
these discounts regardless of whether it later sold or returned the purchased products.  In addition, 
McAfee even paid Ingram Micro a profit margin on products that McAfee itself later re-sold 
through a McAfee subsidiary.  Consequently, McAfee paid Ingram Micro millions of dollars to 
take and hold products that Ingram Micro did not need and was not selling.  The combination of an 
unlimited right of return and payment of nonrefundable discounts created a mutually beneficial and 
profitable relationship between the companies.  Ingram Micro gave McAfee a ready outlet for large 
volumes of its products, a substantial portion of which ultimately were not sold and were returned 
to McAfee, and McAfee used these sales to inflate its reported revenue.  For its part, Ingram Micro 
had a cash-rich vendor willing to make extraordinary payments and concessions that enabled 
Ingram Micro’s Product Management Group to post greater profit margins for its software 
segment, and thereby boost the company’s overall performance.   
 
Ingram Micro Ignored Its Internal Inventory Goals and Held Excess McAfee Product
 
 
 8. During the relevant period, Ingram Micro’s internal inventory management goal 
was to carry no more than eight weeks worth of inventory from any vendor.  Ingram Micro 
monitored its levels of owned inventory on a monthly basis.  From the second quarter of 1998 
through 2000, in order to take advantage of McAfee’s willingness to pay Ingram Micro to buy 
ever-increasing levels of unneeded products, Ingram Micro disregarded its inventory goals and 
held excessive amounts of unneeded McAfee products, maintaining inventory levels far in excess 
of the amount it reasonably expected to sell.  By early 2000, Ingram Micro carried as much as 
twenty-two months worth of   inventory of McAfee software licenses (that is, the amount of 
inventory that Ingram Micro ordinarily would expect to sell over the course of twenty-two 
months).  Instead of exercising its unwritten right to return products to McAfee in order to reduce 
the inventory, Ingram Micro continued purchasing McAfee product in 2000 in order to take 
advantage of the extraordinary discounts and cash payments offered to Ingram Micro by McAfee 
as an inducement to purchase additional products. 
 
 

 
5
Ingram Micro Misrecorded on its Books and Records Round-Trip Transactions  
With McAfee That Were Not Detected by Ingram Micro’s Internal Controls
 
 
 9. During the relevant period, Ingram Micro and McAfee also engaged in various 
circular transactions that were lacking in economic substance and were designed solely to inflate 
McAfee’s reported revenues.  Ingram Micro profited from these transactions by receiving unearned 
compensation on sales that it did not originate.   
 
            10.            From            June            1998            through June 2000, McAfee bought back tens of millions of dollars 
worth of its own products from Ingram Micro – while granting Ingram Micro a significantly higher 
than normal profit margin – in order to avoid costly direct returns that would have negatively 
impacted McAfee’s revenues.  McAfee carried out this subterfuge by using a subsidiary called 
“Net Tools” to repurchase approximately $45.5 million of inventory it had sold to Ingram Micro.  
In order to avoid accepting returns directly from Ingram Micro, McAfee acted as a reseller and 
instructed Ingram Micro to ship the products to buyers identified by McAfee.  McAfee reimbursed 
Ingram Micro for the shipping costs and paid an inflated profit margin to Ingram Micro, even 
though Ingram Micro had done nothing to bring about the sale of the products.  These transactions 
reduced Ingram Micro’s inventory and enabled Ingram Micro to dispose of excess McAfee 
products at a profit, without directly returning the product to McAfee.  McAfee’s use of Net Tools 
as a means for reducing excess inventory held by Ingram Micro was a subject of quarterly buy-in 
negotiations between McAfee and Ingram Micro concerning the amount of additional McAfee 
products that Ingram Micro would agree to buy and the terms of those quarterly buy-in 
transactions.  Ingram Micro knew or should have known that McAfee was buying back its own 
products through Net Tools.  Ingram Micro dedicated no selling efforts to these transactions – no 
sales executive was ever assigned by Ingram Micro to the Net Tools account.  Nonetheless, Ingram 
Micro earned a high profit margin of approximately thirteen percent on its sales to Net Tools, far in 
excess of its average profit margin of two to three percent during that period. 
 
 11. In seven consecutive quarters beginning in 1998, Ingram Micro and McAfee took 
advantage of asymmetries in the dates on which the companies’ respective quarters ended.
4
  Before 
the end of McAfee’s quarter, Ingram Micro would agree to purchase millions of dollars of McAfee 
products that it did not need to meet its inventory requirements or sales goals.  Within days, 
however, after McAfee’s quarter closed, but before Ingram Micro’s quarter had ended, Ingram 
Micro returned equivalent product to McAfee to avoid reporting the inventory on its quarter-end 
financial statements.  McAfee exploited the timing of the product sales and returns that occurred 
during the gaps between the companies’ quarter-ends (“gap days”) to record revenues in one 
quarter while deferring recording the related returns until the following quarter.  McAfee 
compensated Ingram Micro for participating in these patently-irregular and nonsubstantive gap day 
transactions by paying Ingram Micro non-refundable volume-based discounts on the purchases.  
McAfee, in turn, engaged in the sham gap day transactions and deferred accounting for the product 
                                                
 
 
4
  Ingram Micro’s fiscal calendar was organized into four quarters of thirteen weeks, while 
McAfee’s fiscal calendar used the more traditional quarters that ended on the last day of every third month.  
Consequently, McAfee’s fiscal quarter would, at times, end one or more days before Ingram Micro’s fiscal quarter 
ended.
 
 

 
6
                                                
returns until the following quarter, in order to create the appearance that it had met its quarterly 
sales goals and to inflate its revenue.  In total, more than $115 million worth of McAfee products 
was purchased and returned by Ingram Micro in such gap day transactions.
5
 
 
 12. Ingram Micro’s participation in the quarter-end transactions was attributable, in 
part, to a failure to devise and maintain an adequate system of internal controls.  Although Ingram 
Micro’s Product Management Group approved the amount and timing of the purchases from and 
returns to McAfee, properly functioning internal accounting controls would have alerted senior 
management to the nature, timing, and extent of the nonsubstantive purchase-and-return 
transactions.  Ingram Micro’s books and records did not fairly and accurately reflect the true nature 
of these transactions. 
 
13. In the second quarter of 1999, McAfee arranged sham sales of approximately $11 
million worth of products by Ingram Micro to certain customers as another means of bolstering 
McAfee’s reported revenues.  To execute these transactions, Ingram Micro needed to make a 
special purchase of McAfee product, which it then delivered to the customers that had been 
identified by McAfee. McAfee recorded revenue immediately upon sale of the additional product 
to Ingram Micro. The products later were returned to Ingram Micro by the customers.  McAfee 
paid Ingram Micro more than $600,000 as a purported profit on the sales, even though Ingram 
Micro was merely the conduit for the delivery and subsequent return of the products.    When 
Ingram Micro sought to deduct from its accounts payable to McAfee the cost of the goods that it 
had specially purchased for these transactions, which would have lowered McAfee’s revenues in 
the quarter, McAfee sent Ingram Micro a cash payment equal to the cost of the goods and a profit 
 
5
  Ingram Micro and McAfee also engaged in other similar transactions that were designed to 
enable McAfee to record revenue from additional sales to Ingram Micro prior to the end of its quarter, while 
deferring when Ingram Micro would receive the product and, ultimately, allowing Ingram Micro to return to 
McAfee in a subsequent quarter a substantial portion of the product that Ingram Micro purchased in such 
transactions.  Ingram Micro and McAfee structured certain quarterly buy-in deals so that McAfee could 
record revenue from such sales during its quarter, but the purchased product would not “arrive” in Ingram 
Micro’s inventory until after Ingram Micro’s quarter had ended.  At various times during the relevant 
period, Ingram Micro insisted on such “slow-boating” arrangements as a condition of its agreement to 
purchase product from McAfee.  McAfee’s agreement not to ship the product until after Ingram Micro’s 
quarter had ended enabled Ingram Micro to avoid recording the product in its inventory for its quarterly 
reports.  However, the agreements were contrivances because the products at issue were, for the most part, 
software licenses and not tangible inventory that needed to be shipped or otherwise physically delivered.  
McAfee made rebate payments and other concessions in order to induce Ingram Micro to participate in such 
transactions. 
 
  Between the first quarter of 1999 and the fourth quarter of 2000, Ingram Micro placed at 
least $188.5 million in purchase orders that were designated for shipment after the close of Ingram 
Micro’s quarter.  Of this amount, Ingram Micro received about $172 million in McAfee products after the 
quarter in which the buy-in deal was made.  Of the $172 million in products that were received after the 
quarter of the buy-in deal, Ingram Micro returned approximately $145 million worth to McAfee.  These 
returns effectively completed round-trip transactions that enabled McAfee to inflate its reported financial 
results.  For its part, Ingram Micro received millions of dollars in payments and other concessions from 
McAfee that, as discussed above, were not contingent on Ingram Micro actually selling the products. 

 
7
margin of more than $600,000, in order to avoid having to accept a return.  Ingram Micro 
inaccurately recorded the transaction as a sale in its own financial records.   
 
Ingram Micro Was Paid To Not Return McAfee Products
 
 
 14. McAfee made disguised payments to induce Ingram Micro to refrain from 
exercising its unlimited right to return unsold inventory to McAfee.  On at least four occasions, 
Ingram Micro requested and received payments for holding “excess inventory,” even though the 
inventory consisted mainly of electronic software licenses represented by bar codes kept in binders 
that occupied little warehouse space and, as a result, entailed virtually no storage expense for 
Ingram Micro.  The excess inventory fees were calculated as a percentage of the value of Ingram 
Micro’s owned inventory of McAfee products. 
 
 15. As Ingram Micro’s inventory of McAfee products increased, so did the size of its 
requests for excess inventory payments, resulting in Ingram Micro obtaining both volume-based 
discounts at the time of the buy-in agreements, and additional holding fees on the same unsold 
products for agreeing not to return them to McAfee.  Near the end of the first quarter of 2000, 
Ingram Micro determined that it held $54 million worth of excess McAfee inventory.  To forestall 
a return of some or all of this inventory, senior McAfee officials offered to discount the amount 
that Ingram Micro owed McAfee by two percent of the value of the excess inventory – or 
approximately $1.1 million -- as a further inducement for Ingram Micro to continue holding the 
excess inventory and purchasing additional inventory in the following quarter.  This discount was 
memorialized in a side letter dated March 8, 2000.  Subsequently, Ingram Micro not only did not 
return the excess McAfee inventory, but, on March 24, 2000, entered into a new agreement to 
purchase approximately $31.4 million worth of additional McAfee products.  Ingram Micro also 
requested excess inventory fees in the second and third quarters of 2000, similarly calculated as a 
percentage of the value of the excess stock that Ingram Micro held in its inventory.  In June 2000, 
Ingram Micro received approximately $2.5 million to continue holding excess inventory, and in the 
third quarter, Ingram Micro was paid approximately $3.8 million in excess inventory payments.  
 
Ingram Micro Misrecorded Excess Inventory Payments as Early Pay Discounts
 
 
16. The excess inventory fees negotiated by Ingram Micro for the second and third 
quarters of 2000 were characterized on Ingram Micro’s books in a manner designed to meet 
quarterly financial targets.  In both quarters, Ingram Micro asked McAfee to recharacterize the 
excess inventory payments as “early pay” discounts, or discounts that would have been earned if 
Ingram Micro had paid on its account with McAfee earlier than required under their contract.  
These recharacterizations did not accurately reflect the substance of the McAfee payments.  Under 
Ingram Micro’s accounting policies, had the $6.3 million of fees been associated with its 
inventory, such as an “excess inventory” payment, then Ingram Micro would have been unable to 
recognize the full amount of the fees in the quarters in which they were received, pending the 
disposition of the inventory associated with the fees.  After McAfee agreed to recharacterize the 
fees as “early pay discounts,” Ingram Micro recognized the fees into income in the quarters they 
were received, and did not amortize them over time, as required by its accounting policies.  In 
these transactions, Ingram Micro solicited and obtained documentation from McAfee that did not 

 
8
accurately reflect the substance of the McAfee payments.  As a result, Ingram Micro inaccurately 
recorded those transactions on its books and records as “early pay” discounts, rather than 
inventory-related payments. 
 
Ingram Micro Accepted and Misrecorded Mischaracterized Payments From McAfee
 
 
 17.  McAfee often mischaracterized in its communications with Ingram Micro the 
purpose and nature of the payments that it was making to Ingram Micro as inducements for Ingram 
Micro to hold excess inventory and purchase additional inventory.  From September 1999 through 
October 2000, McAfee mischaracterized in correspondence and communications with Ingram 
Micro the actual purpose of payments totaling at least $59.5 million.  McAfee relied upon the 
misleading descriptions to disguise and justify its own improper accounting for the discounts and 
concessions it paid to Ingram Micro.  Although Ingram Micro was aware of the 
mischaracterizations as well as the actual purpose for the payments from McAfee, Ingram Micro 
accepted the payments and typically recorded them on its books and records with different 
explanations or designations that comported with Ingram Micro’s understanding of the actual 
purpose of the payments, and not the explanation that had been made by McAfee in its 
correspondence.  A properly functioning system of internal controls would have alerted senior 
management to these discrepancies. 
 
 18. In one instance, on September 30, 1999, McAfee wired a $16 million cash payment 
to Ingram Micro in order to keep Ingram Micro from reducing its payment on a pending invoice by 
a corresponding amount.  Ingram Micro initially classified the payment as an “unapplied amount 
for future amounts due,” but later, Ingram Micro applied the $16 million cash payment to offset 
nearly $16 million in planned returns, rather than deducting that amount from a payment to 
McAfee for product purchases.  At the end of the quarter, Ingram Micro paid McAfee in full the 
invoiced amounts for purchased product, in effect returning the $16 million to McAfee.  Ingram 
Micro’s books and records, and internal controls, never properly reflected the purpose of the $16 
million payment, which was to prevent Ingram Micro from returning products and reducing its 
accounts payable to McAfee.    
 
 19. Similarly, in November 1999, McAfee sent Ingram Micro a memorandum in which 
it outlined a plan to pay Ingram Micro $21 million for discounts, fees, and concessions that had 
been negotiated in prior quarterly buy-in transactions.  On November 17, 1999, McAfee delivered 
eight payments totaling over $21 million to Ingram Micro in eight separate wire transfers.  At the 
same time, McAfee also sent Ingram Micro eight cover letters, each dated November 17, 1999, 
characterizing the payments as reimbursement for expenses such as “marketing fund rebates and 
other promotional programs” rather than discounts, fees, and concessions, and attributing the 
payments to quarters other than those for which the payments actually were being made.    
 
 20. McAfee’s November 1999 memorandum also revealed that one purpose of the 
payments was to create a misleading accounts receivable balance that Ingram Micro could confirm 
to McAfee’s outside accountants.  In the memorandum, McAfee asked Ingram Micro to confirm to 
McAfee’s outside accountants that Ingram Micro owed McAfee approximately $40 million.  
However, at the time, Ingram Micro could not truthfully confirm a $40 million balance because 

 
9
Ingram Micro’s records reflected an account payable of only about $19 million, after deducting the 
$21 million in discounts and other amounts that McAfee previously had agreed to pay to Ingram 
Micro for purchasing additional products.  In the memorandum, McAfee proposed that it would 
pay Ingram Micro $21 million in order to offset the $21 million in discounts and concessions that 
Ingram Micro claimed it was owed, and that, Ingram Micro, in turn, would confirm to McAfee’s 
outside auditors that it owed McAfee an undiscounted total of $40 million.  McAfee’s outside 
auditors never received the confirmation in question from Ingram Micro.  Ingram Micro 
nevertheless retained the $21 million, canceled the outstanding discounts and reductions on its 
records, and later sent McAfee a check for approximately $38 million as payment in full under the 
invoices in question.
6
  By participating in this round-tripping of cash payments with McAfee, 
Ingram Micro helped to create the false impression that McAfee had been paid in full on the 
outstanding invoices to Ingram Micro.  As a result, Ingram Micro overstated its accounts payable 
for the quarter and its internal controls failed to alert Ingram Micro’s senior management that the 
company was engaging in a highly irregular transaction that lacked economic substance. 
 
Violations
 
 
21. A result of the conduct described above, Ingram Micro violated Exchange Act 
Section 13(b)(2)(A), which required Ingram Micro to make and keep books, records and accounts 
which, in reasonable detail, accurately and fairly reflect its transactions. 
 
22. As a further result of the conduct described above, Ingram Micro violated Exchange 
Act Section 13(b)(2)(B), which required Ingram Micro to devise and maintain a system of internal 
controls sufficient to provide reasonable assurance that transactions are executed in accordance 
with management’s general or specific authorization. 
 
Ingram Micro’s Remedial Efforts
 
 
23. In determining to accept the Offer, the Commission considered remedial 
acts promptly undertaken by Respondent and cooperation afforded the Commission staff. 
IV. 
 
 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondent Ingram Micro’s Offer. 
 
 Accordingly, pursuant to Section 21C of the Exchange Act, it is hereby ORDERED that: 
 
            A.            Respondent            Ingram            Micro Inc. cease and desist from committing or causing any 
violations and any future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. 
 
B.        IT IS FURTHER ORDERED that Respondent shall, within thirty (30) days of the 
entry of this Order, pay disgorgement of $15,000,000 to the Clerk of the United States District 
                                                
 
 
6
  McAfee’s auditors relied on the fact that Ingram Micro had paid the invoiced amount in 
full as proof that Ingram Micro, in fact, owed that amount to McAfee.
 

 
10
Court for the Northern District of California to be added to the Distribution Fund established in 
SEC v. McAfee, Inc.
, Case Number C06-0009 (PJH).  Respondent shall provide proof of payment, 
in a form acceptable to the staff of the Commission, to Yuri B. Zelinsky, Division of Enforcement, 
Securities and Exchange Commission, 100 F St., N.E., Washington, D.C. 20549.  In the event the 
Court disallows such payment to the Distribution Fund then Respondent shall pay within ten (10) 
days after the Court disallows said payment $15,000,000 to the United States Securities and 
Exchange Commission.  If timely payment is not made, additional interest shall accrue pursuant to 
SEC Rule of Practice 600.  Payment shall be: (A) made by United States postal money order, 
certified check, bank cashier's check or bank money order; (B) made payable to the Securities and 
Exchange Commission; (C) hand-delivered or mailed to the Office of Financial Management, 
Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, 
Alexandria, VA 22312; and (D) submitted under cover letter that identifies Ingram Micro Inc. as a 
Respondent in these proceedings, the file number of these proceedings, a copy of which cover 
letter and money order or check shall be sent to Yuri B. Zelinsky, Division of Enforcement, 
Securities and Exchange Commission, 100 F St., N.E., Washington, D.C. 20549.   
 
            By            the            Commission.            
 
 
 
       Elizabeth M. Murphy 
       Secretary 

UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 59903 / May 12, 2009 
 
ACCOUNTING AND AUDITING ENFORCEMENT 
Release No. 2968 / May 12, 2009 
 
ADMINISTRATIVE PROCEEDING 
File No.  3-13466 
 
 
In the Matter of 
 

INGRAM MICRO INC.,  
 
Respondent. 
 
 

 
ORDER INSTITUTING CEASE-AND-DESIST 
PROCEEDINGS PURSUANT TO SECTION 
21C OF THE SECURITIES EXCHANGE ACT 
OF 1934, MAKING FINDINGS, AND 
IMPOSING A CEASE-AND-DESIST ORDER  

   
 

I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
Exchange Act of 1934 (“Exchange Act”), against Ingram Micro Inc. (“Ingram Micro” or 
“Respondent”).   

 
II. 

 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “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 it and the subject matter of these 
proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.   
 

 



 2

 
III. 

 
 On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
 

Summary 
 
 These proceedings arise out of the business dealings between Ingram Micro and McAfee, 
Inc., formerly known as Network Associates, Inc. (referred to herein as “McAfee”) during the 
period from the second quarter of 1998 through the third quarter of 2000 when McAfee was 
engaged in a massive financial fraud.  During that period, McAfee overstated its revenues and 
earnings by stuffing its distribution channel at Ingram Micro with levels of inventory far in excess 
of any reasonable expectation of sales to end users while misreporting its revenues from these sales 
to their distributors.2  For its part, Ingram Micro, McAfee’s largest customer and greatest single 
source of revenue, engaged in a variety of highly irregular transactions with McAfee, many of 
them lacking in economic substance, which enabled McAfee to continue overselling its products to 
Ingram Micro.  In the course of its business dealings with McAfee, Ingram Micro failed to keep 
accurate books and records and failed to devise and maintain an adequate system of internal 
controls.  Ingram Micro was compensated by McAfee for engaging in these irregular transactions 
through the payment of millions of dollars of unearned profits, cash payments, and improperly 
recorded excess inventory fees.   
 

Respondent 
 

1. Respondent Ingram Micro Inc. is a Delaware corporation with its principal office in 
Santa Ana, California.  Ingram Micro is a technology distribution company.  Ingram Micro’s 
common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act 
and is listed on the New York Stock Exchange under the symbol “IM.” 
  

Other Relevant Entity 
 
 2. McAfee, Inc. is a Delaware corporation with its principal office in Santa Clara, 
California.  McAfee is a manufacturer of computer programs focusing on network security, anti-
virus, and network management products.  McAfee’s common stock is registered with the 
Commission pursuant to Section 12(b) of the Exchange Act and is listed on the New York Stock 
Exchange under the symbol “MFE.”  Prior to June 30, 2004, McAfee was known as Network 
Associates, Inc. 
 
                                                 

1 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding 
on any other person or entity in this or any other proceeding.  

2 On January 4, 2006, the Commission filed a settled civil injunctive action against McAfee, Inc., in which 
McAfee agreed to be permanently enjoined from violations of the anti-fraud, books and records, and internal 
controls provisions of the Exchange Act.  McAfee also consented to the entry of a permanent injunction and the 
payment of a $50 million civil penalty.  SEC v. McAfee, Inc., Civil Action No. 06-009 (PJH) (N.D. Cal.); Lit. Rel. 
No. 19520 (Jan. 4, 2006).   



 3

Facts 
 

Background 
 
3. Between 1998 and 2000, McAfee overstated its revenues by $622 million in order 

to meet revenue and earnings targets, and understated its cumulative net losses by $353 million.  
As the Commission alleged in its January 2006 complaint:  

 
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. 
 

In addition, the Commission’s complaint alleged that McAfee concealed its scheme by “falsely 
record[ing] in its books and records certain of the payments and concessions to distributors,” and 
that McAfee “misled investors by filing with the Commission materially false and misleading 
annual and quarterly reports and securities registration statements.”  As a result, McAfee violated 
antifraud, issuer reporting, books and records, and internal controls provisions of the securities 
laws.  In settlement, McAfee agreed to a permanent injunction and paid a $50 million civil penalty. 
  

4. During the period of McAfee’s misconduct, Ingram Micro was McAfee’s largest 
distributor and single most significant source of sales.3  In 1998, McAfee changed its accounting 
method to the “sell-in” model, which allowed it to recognize revenue upon the sale of products to 
distributors like Ingram Micro, instead of deferring revenue recognition until its products had been 
sold to end-users.  Taking advantage of the change to sell-in accounting, McAfee embarked on a 
scheme to meet quarterly revenue targets through “channel stuffing” – that is, by pushing excessive 
amounts of products to its distributors, particularly Ingram Micro.  End-of-quarter sales to Ingram 
Micro (memorialized in so-called “buy-in agreements” that were negotiated quarterly between the 
two companies), in particular, had a significant impact on McAfee’s reported revenues and its 
ability to meet market expectations.   

 
5. Ingram Micro’s written contract with McAfee expressly limited Ingram Micro’s 

ability to return products.  However, McAfee and Ingram Micro had an unwritten understanding 
that Ingram Micro had an unlimited right to return unsold products to McAfee.  During this period, 
few vendors extended unlimited return rights to their distributors, but McAfee offered unlimited 
return rights to Ingram Micro in order to induce Ingram Micro to purchase additional product.   

 

                                                 
3  In the year 2000, for example, sales to Ingram Micro accounted for approximately twenty percent 
of McAfee’s net revenue. 
 



 4

6. Starting in the second quarter of 1998, Ingram Micro’s Product Management Group 
realized that McAfee was willing to provide deep discounts and off-contract enhancements to 
Ingram Micro in the quarterly “buy-in agreements.”  As a result, Ingram Micro altered its buying 
practices and began ordering extraordinarily large amounts of McAfee products, far in excess of 
the amounts that Ingram Micro reasonably expected to sell.  Ingram Micro began to realize 
significantly higher profit margins in return for taking on excess inventory from McAfee, which 
consisted mainly of software licenses.  In return for Ingram Micro’s increased purchases, McAfee 
provided various forms of compensation – in the form of cash payments, price concessions, and 
allowances for unlimited returns – that made Ingram Micro’s role in McAfee’s channel-stuffing 
scheme highly profitable and low-risk.   

 
7. The McAfee account rapidly became one of Ingram Micro’s most profitable vendor 

relationships, despite the fact that McAfee represented a small percentage of Ingram Micro’s total 
sales.  Ingram Micro obtained extraordinary profit margins on its business with McAfee compared 
to its other vendors because, unlike other vendors, McAfee routinely provided Ingram Micro with 
nonrefundable discounts on Ingram Micro’s orders of McAfee products.  Ingram Micro retained 
these discounts regardless of whether it later sold or returned the purchased products.  In addition, 
McAfee even paid Ingram Micro a profit margin on products that McAfee itself later re-sold 
through a McAfee subsidiary.  Consequently, McAfee paid Ingram Micro millions of dollars to 
take and hold products that Ingram Micro did not need and was not selling.  The combination of an 
unlimited right of return and payment of nonrefundable discounts created a mutually beneficial and 
profitable relationship between the companies.  Ingram Micro gave McAfee a ready outlet for large 
volumes of its products, a substantial portion of which ultimately were not sold and were returned 
to McAfee, and McAfee used these sales to inflate its reported revenue.  For its part, Ingram Micro 
had a cash-rich vendor willing to make extraordinary payments and concessions that enabled 
Ingram Micro’s Product Management Group to post greater profit margins for its software 
segment, and thereby boost the company’s overall performance.   

 
Ingram Micro Ignored Its Internal Inventory Goals and Held Excess McAfee Product 
 

 8. During the relevant period, Ingram Micro’s internal inventory management goal 
was to carry no more than eight weeks worth of inventory from any vendor.  Ingram Micro 
monitored its levels of owned inventory on a monthly basis.  From the second quarter of 1998 
through 2000, in order to take advantage of McAfee’s willingness to pay Ingram Micro to buy 
ever-increasing levels of unneeded products, Ingram Micro disregarded its inventory goals and 
held excessive amounts of unneeded McAfee products, maintaining inventory levels far in excess 
of the amount it reasonably expected to sell.  By early 2000, Ingram Micro carried as much as 
twenty-two months worth of   inventory of McAfee software licenses (that is, the amount of 
inventory that Ingram Micro ordinarily would expect to sell over the course of twenty-two 
months).  Instead of exercising its unwritten right to return products to McAfee in order to reduce 
the inventory, Ingram Micro continued purchasing McAfee product in 2000 in order to take 
advantage of the extraordinary discounts and cash payments offered to Ingram Micro by McAfee 
as an inducement to purchase additional products. 
 
 



 5

Ingram Micro Misrecorded on its Books and Records Round-Trip Transactions  
With McAfee That Were Not Detected by Ingram Micro’s Internal Controls 

 
 9. During the relevant period, Ingram Micro and McAfee also engaged in various 
circular transactions that were lacking in economic substance and were designed solely to inflate 
McAfee’s reported revenues.  Ingram Micro profited from these transactions by receiving unearned 
compensation on sales that it did not originate.   
 
 10. From June 1998 through June 2000, McAfee bought back tens of millions of dollars 
worth of its own products from Ingram Micro – while granting Ingram Micro a significantly higher 
than normal profit margin – in order to avoid costly direct returns that would have negatively 
impacted McAfee’s revenues.  McAfee carried out this subterfuge by using a subsidiary called 
“Net Tools” to repurchase approximately $45.5 million of inventory it had sold to Ingram Micro.  
In order to avoid accepting returns directly from Ingram Micro, McAfee acted as a reseller and 
instructed Ingram Micro to ship the products to buyers identified by McAfee.  McAfee reimbursed 
Ingram Micro for the shipping costs and paid an inflated profit margin to Ingram Micro, even 
though Ingram Micro had done nothing to bring about the sale of the products.  These transactions 
reduced Ingram Micro’s inventory and enabled Ingram Micro to dispose of excess McAfee 
products at a profit, without directly returning the product to McAfee.  McAfee’s use of Net Tools 
as a means for reducing excess inventory held by Ingram Micro was a subject of quarterly buy-in 
negotiations between McAfee and Ingram Micro concerning the amount of additional McAfee 
products that Ingram Micro would agree to buy and the terms of those quarterly buy-in 
transactions.  Ingram Micro knew or should have known that McAfee was buying back its own 
products through Net Tools.  Ingram Micro dedicated no selling efforts to these transactions – no 
sales executive was ever assigned by Ingram Micro to the Net Tools account.  Nonetheless, Ingram 
Micro earned a high profit margin of approximately thirteen percent on its sales to Net Tools, far in 
excess of its average profit margin of two to three percent during that period. 
 
 11. In seven consecutive quarters beginning in 1998, Ingram Micro and McAfee took 
advantage of asymmetries in the dates on which the companies’ respective quarters ended.4  Before 
the end of McAfee’s quarter, Ingram Micro would agree to purchase millions of dollars of McAfee 
products that it did not need to meet its inventory requirements or sales goals.  Within days, 
however, after McAfee’s quarter closed, but before Ingram Micro’s quarter had ended, Ingram 
Micro returned equivalent product to McAfee to avoid reporting the inventory on its quarter-end 
financial statements.  McAfee exploited the timing of the product sales and returns that occurred 
during the gaps between the companies’ quarter-ends (“gap days”) to record revenues in one 
quarter while deferring recording the related returns until the following quarter.  McAfee 
compensated Ingram Micro for participating in these patently-irregular and nonsubstantive gap day 
transactions by paying Ingram Micro non-refundable volume-based discounts on the purchases.  
McAfee, in turn, engaged in the sham gap day transactions and deferred accounting for the product 

                                                 
 4  Ingram Micro’s fiscal calendar was organized into four quarters of thirteen weeks, while 
McAfee’s fiscal calendar used the more traditional quarters that ended on the last day of every third month.  
Consequently, McAfee’s fiscal quarter would, at times, end one or more days before Ingram Micro’s fiscal quarter 
ended. 
 



 6

                                                

returns until the following quarter, in order to create the appearance that it had met its quarterly 
sales goals and to inflate its revenue.  In total, more than $115 million worth of McAfee products 
was purchased and returned by Ingram Micro in such gap day transactions.5 

 
 12. Ingram Micro’s participation in the quarter-end transactions was attributable, in 
part, to a failure to devise and maintain an adequate system of internal controls.  Although Ingram 
Micro’s Product Management Group approved the amount and timing of the purchases from and 
returns to McAfee, properly functioning internal accounting controls would have alerted senior 
management to the nature, timing, and extent of the nonsubstantive purchase-and-return 
transactions.  Ingram Micro’s books and records did not fairly and accurately reflect the true nature 
of these transactions. 
 

13. In the second quarter of 1999, McAfee arranged sham sales of approximately $11 
million worth of products by Ingram Micro to certain customers as another means of bolstering 
McAfee’s reported revenues.  To execute these transactions, Ingram Micro needed to make a 
special purchase of McAfee product, which it then delivered to the customers that had been 
identified by McAfee. McAfee recorded revenue immediately upon sale of the additional product 
to Ingram Micro. The products later were returned to Ingram Micro by the customers.  McAfee 
paid Ingram Micro more than $600,000 as a purported profit on the sales, even though Ingram 
Micro was merely the conduit for the delivery and subsequent return of the products.    When 
Ingram Micro sought to deduct from its accounts payable to McAfee the cost of the goods that it 
had specially purchased for these transactions, which would have lowered McAfee’s revenues in 
the quarter, McAfee sent Ingram Micro a cash payment equal to the cost of the goods and a profit 

 
5  Ingram Micro and McAfee also engaged in other similar transactions that were designed to 

enable McAfee to record revenue from additional sales to Ingram Micro prior to the end of its quarter, while 
deferring when Ingram Micro would receive the product and, ultimately, allowing Ingram Micro to return to 
McAfee in a subsequent quarter a substantial portion of the product that Ingram Micro purchased in such 
transactions.  Ingram Micro and McAfee structured certain quarterly buy-in deals so that McAfee could 
record revenue from such sales during its quarter, but the purchased product would not “arrive” in Ingram 
Micro’s inventory until after Ingram Micro’s quarter had ended.  At various times during the relevant 
period, Ingram Micro insisted on such “slow-boating” arrangements as a condition of its agreement to 
purchase product from McAfee.  McAfee’s agreement not to ship the product until after Ingram Micro’s 
quarter had ended enabled Ingram Micro to avoid recording the product in its inventory for its quarterly 
reports.  However, the agreements were contrivances because the products at issue were, for the most part, 
software licenses and not tangible inventory that needed to be shipped or otherwise physically delivered.  
McAfee made rebate payments and other concessions in order to induce Ingram Micro to participate in such 
transactions. 

 
  Between the first quarter of 1999 and the fourth quarter of 2000, Ingram Micro placed at 
least $188.5 million in purchase orders that were designated for shipment after the close of Ingram 
Micro’s quarter.  Of this amount, Ingram Micro received about $172 million in McAfee products after the 
quarter in which the buy-in deal was made.  Of the $172 million in products that were received after the 
quarter of the buy-in deal, Ingram Micro returned approximately $145 million worth to McAfee.  These 
returns effectively completed round-trip transactions that enabled McAfee to inflate its reported financial 
results.  For its part, Ingram Micro received millions of dollars in payments and other concessions from 
McAfee that, as discussed above, were not contingent on Ingram Micro actually selling the products. 



 7

margin of more than $600,000, in order to avoid having to accept a return.  Ingram Micro 
inaccurately recorded the transaction as a sale in its own financial records.   
 

Ingram Micro Was Paid To Not Return McAfee Products 
 
 14. McAfee made disguised payments to induce Ingram Micro to refrain from 
exercising its unlimited right to return unsold inventory to McAfee.  On at least four occasions, 
Ingram Micro requested and received payments for holding “excess inventory,” even though the 
inventory consisted mainly of electronic software licenses represented by bar codes kept in binders 
that occupied little warehouse space and, as a result, entailed virtually no storage expense for 
Ingram Micro.  The excess inventory fees were calculated as a percentage of the value of Ingram 
Micro’s owned inventory of McAfee products. 
 
 15. As Ingram Micro’s inventory of McAfee products increased, so did the size of its 
requests for excess inventory payments, resulting in Ingram Micro obtaining both volume-based 
discounts at the time of the buy-in agreements, and additional holding fees on the same unsold 
products for agreeing not to return them to McAfee.  Near the end of the first quarter of 2000, 
Ingram Micro determined that it held $54 million worth of excess McAfee inventory.  To forestall 
a return of some or all of this inventory, senior McAfee officials offered to discount the amount 
that Ingram Micro owed McAfee by two percent of the value of the excess inventory – or 
approximately $1.1 million -- as a further inducement for Ingram Micro to continue holding the 
excess inventory and purchasing additional inventory in the following quarter.  This discount was 
memorialized in a side letter dated March 8, 2000.  Subsequently, Ingram Micro not only did not 
return the excess McAfee inventory, but, on March 24, 2000, entered into a new agreement to 
purchase approximately $31.4 million worth of additional McAfee products.  Ingram Micro also 
requested excess inventory fees in the second and third quarters of 2000, similarly calculated as a 
percentage of the value of the excess stock that Ingram Micro held in its inventory.  In June 2000, 
Ingram Micro received approximately $2.5 million to continue holding excess inventory, and in the 
third quarter, Ingram Micro was paid approximately $3.8 million in excess inventory payments.  
 

Ingram Micro Misrecorded Excess Inventory Payments as Early Pay Discounts 
 

16. The excess inventory fees negotiated by Ingram Micro for the second and third 
quarters of 2000 were characterized on Ingram Micro’s books in a manner designed to meet 
quarterly financial targets.  In both quarters, Ingram Micro asked McAfee to recharacterize the 
excess inventory payments as “early pay” discounts, or discounts that would have been earned if 
Ingram Micro had paid on its account with McAfee earlier than required under their contract.  
These recharacterizations did not accurately reflect the substance of the McAfee payments.  Under 
Ingram Micro’s accounting policies, had the $6.3 million of fees been associated with its 
inventory, such as an “excess inventory” payment, then Ingram Micro would have been unable to 
recognize the full amount of the fees in the quarters in which they were received, pending the 
disposition of the inventory associated with the fees.  After McAfee agreed to recharacterize the 
fees as “early pay discounts,” Ingram Micro recognized the fees into income in the quarters they 
were received, and did not amortize them over time, as required by its accounting policies.  In 
these transactions, Ingram Micro solicited and obtained documentation from McAfee that did not 



 8

accurately reflect the substance of the McAfee payments.  As a result, Ingram Micro inaccurately 
recorded those transactions on its books and records as “early pay” discounts, rather than 
inventory-related payments. 
 

Ingram Micro Accepted and Misrecorded Mischaracterized Payments From McAfee 
 
 17.  McAfee often mischaracterized in its communications with Ingram Micro the 
purpose and nature of the payments that it was making to Ingram Micro as inducements for Ingram 
Micro to hold excess inventory and purchase additional inventory.  From September 1999 through 
October 2000, McAfee mischaracterized in correspondence and communications with Ingram 
Micro the actual purpose of payments totaling at least $59.5 million.  McAfee relied upon the 
misleading descriptions to disguise and justify its own improper accounting for the discounts and 
concessions it paid to Ingram Micro.  Although Ingram Micro was aware of the 
mischaracterizations as well as the actual purpose for the payments from McAfee, Ingram Micro 
accepted the payments and typically recorded them on its books and records with different 
explanations or designations that comported with Ingram Micro’s understanding of the actual 
purpose of the payments, and not the explanation that had been made by McAfee in its 
correspondence.  A properly functioning system of internal controls would have alerted senior 
management to these discrepancies. 
 
 18. In one instance, on September 30, 1999, McAfee wired a $16 million cash payment 
to Ingram Micro in order to keep Ingram Micro from reducing its payment on a pending invoice by 
a corresponding amount.  Ingram Micro initially classified the payment as an “unapplied amount 
for future amounts due,” but later, Ingram Micro applied the $16 million cash payment to offset 
nearly $16 million in planned returns, rather than deducting that amount from a payment to 
McAfee for product purchases.  At the end of the quarter, Ingram Micro paid McAfee in full the 
invoiced amounts for purchased product, in effect returning the $16 million to McAfee.  Ingram 
Micro’s books and records, and internal controls, never properly reflected the purpose of the $16 
million payment, which was to prevent Ingram Micro from returning products and reducing its 
accounts payable to McAfee.    
 
 19. Similarly, in November 1999, McAfee sent Ingram Micro a memorandum in which 
it outlined a plan to pay Ingram Micro $21 million for discounts, fees, and concessions that had 
been negotiated in prior quarterly buy-in transactions.  On November 17, 1999, McAfee delivered 
eight payments totaling over $21 million to Ingram Micro in eight separate wire transfers.  At the 
same time, McAfee also sent Ingram Micro eight cover letters, each dated November 17, 1999, 
characterizing the payments as reimbursement for expenses such as “marketing fund rebates and 
other promotional programs” rather than discounts, fees, and concessions, and attributing the 
payments to quarters other than those for which the payments actually were being made.    
 
 20. McAfee’s November 1999 memorandum also revealed that one purpose of the 
payments was to create a misleading accounts receivable balance that Ingram Micro could confirm 
to McAfee’s outside accountants.  In the memorandum, McAfee asked Ingram Micro to confirm to 
McAfee’s outside accountants that Ingram Micro owed McAfee approximately $40 million.  
However, at the time, Ingram Micro could not truthfully confirm a $40 million balance because 



 9

Ingram Micro’s records reflected an account payable of only about $19 million, after deducting the 
$21 million in discounts and other amounts that McAfee previously had agreed to pay to Ingram 
Micro for purchasing additional products.  In the memorandum, McAfee proposed that it would 
pay Ingram Micro $21 million in order to offset the $21 million in discounts and concessions that 
Ingram Micro claimed it was owed, and that, Ingram Micro, in turn, would confirm to McAfee’s 
outside auditors that it owed McAfee an undiscounted total of $40 million.  McAfee’s outside 
auditors never received the confirmation in question from Ingram Micro.  Ingram Micro 
nevertheless retained the $21 million, canceled the outstanding discounts and reductions on its 
records, and later sent McAfee a check for approximately $38 million as payment in full under the 
invoices in question.6  By participating in this round-tripping of cash payments with McAfee, 
Ingram Micro helped to create the false impression that McAfee had been paid in full on the 
outstanding invoices to Ingram Micro.  As a result, Ingram Micro overstated its accounts payable 
for the quarter and its internal controls failed to alert Ingram Micro’s senior management that the 
company was engaging in a highly irregular transaction that lacked economic substance. 
 

Violations 
 

21. A result of the conduct described above, Ingram Micro violated Exchange Act 
Section 13(b)(2)(A), which required Ingram Micro to make and keep books, records and accounts 
which, in reasonable detail, accurately and fairly reflect its transactions. 
 

22. As a further result of the conduct described above, Ingram Micro violated Exchange 
Act Section 13(b)(2)(B), which required Ingram Micro to devise and maintain a system of internal 
controls sufficient to provide reasonable assurance that transactions are executed in accordance 
with management’s general or specific authorization. 
 

Ingram Micro’s Remedial Efforts 
 

23. In determining to accept the Offer, the Commission considered remedial 
acts promptly undertaken by Respondent and cooperation afforded the Commission staff. 

IV. 
 

 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondent Ingram Micro’s Offer. 
 
 Accordingly, pursuant to Section 21C of the Exchange Act, it is hereby ORDERED that: 
 
 A. Respondent Ingram Micro Inc. cease and desist from committing or causing any 
violations and any future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. 
 

B.        IT IS FURTHER ORDERED that Respondent shall, within thirty (30) days of the 
entry of this Order, pay disgorgement of $15,000,000 to the Clerk of the United States District 
                                                 
 6  McAfee’s auditors relied on the fact that Ingram Micro had paid the invoiced amount in 
full as proof that Ingram Micro, in fact, owed that amount to McAfee. 



 10

Court for the Northern District of California to be added to the Distribution Fund established in 
SEC v. McAfee, Inc., Case Number C06-0009 (PJH).  Respondent shall provide proof of payment, 
in a form acceptable to the staff of the Commission, to Yuri B. Zelinsky, Division of Enforcement, 
Securities and Exchange Commission, 100 F St., N.E., Washington, D.C. 20549.  In the event the 
Court disallows such payment to the Distribution Fund then Respondent shall pay within ten (10) 
days after the Court disallows said payment $15,000,000 to the United States Securities and 
Exchange Commission.  If timely payment is not made, additional interest shall accrue pursuant to 
SEC Rule of Practice 600.  Payment shall be: (A) made by United States postal money order, 
certified check, bank cashier's check or bank money order; (B) made payable to the Securities and 
Exchange Commission; (C) hand-delivered or mailed to the Office of Financial Management, 
Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, 
Alexandria, VA 22312; and (D) submitted under cover letter that identifies Ingram Micro Inc. as a 
Respondent in these proceedings, the file number of these proceedings, a copy of which cover 
letter and money order or check shall be sent to Yuri B. Zelinsky, Division of Enforcement, 
Securities and Exchange Commission, 100 F St., N.E., Washington, D.C. 20549.   
 
 By the Commission. 
 
 
 
       Elizabeth M. Murphy 
       Secretary 


	 UNITED STATES OF AMERICA
	In the Matter of
	INGRAM MICRO INC., 
	Respondent.

	Respondent
	Other Relevant Entity
	IV.