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RSA Security faces SEC injunction threat

Questions over disclosure levels

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ComputerWire: IT Industry Intelligence

The US Securities and Exchange Commission may file for a civil injunction against RSA Security Inc, following an investigation into the company's disclosures of revenue recognition changes, it emerged this week.

In an SEC filing, RSA said SEC officers are to seek permission to "commence a civil injunctive proceeding" and that RSA will "submit a written statement explaining why no such proceeding should be commenced."

"We were notified that part of the next step of the investigative process may be a civil injunction procedure," RSA spokesperson Tim Powers told ComputerWire. "We're giving them more information on why they don't need to go to this next step."

The investigation, which began in January 2002, was into whether RSA provided adequate disclosure to investors that it had changed its accounting practices in the first quarter 2001. The company disclosed in its quarterly SEC filing that it had changed its practices, but did not press release the information at the time it announced its earnings.

In the first quarter 2001, RSA changed its revenue recognition procedures from "sell-through" to "sell-in", said Powers. This means that it went from recognizing revenue after the end user purchase to recognizing revenue as sales were made to distributors.

The change resulted in an increase in revenue of $1.7m for the three months ended March 31, 2001, according to RSA's Q101 SEC filing. Overall, revenue for that quarter increased 21% year-on-year to $76.3m.

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