Dell to pay over $100 million to settle SEC fraud lawsuit
23 Jul 2010
Computer maker Dell, its founder, Michael Dell, and some former executives, yesterday agreed to pay more than $100 million to settle a disclosure accounting fraud lawsuit filed by the Securities and Exchange Commission (SEC).
The SEC had accused Michael Dell, former CEO Kevin Rollins and former CFO James Schneider, for allegedly breaking disclosure laws.
Schneider and two other former executives have also been accused of being involved in alleged fraudulent accounting.
The SEC has alleged that Texas-based Dell, the world's third-largest PC maker after Hewlett-Packard and Taiwan's Acer, did not disclose to investors large exclusivity payments the company received from Intel Corporation to not use central processing units (CPUs) manufactured by Intel's main rival Advanced Micro Systems (AMD).
It was these payments rather than the company's management and operations that allowed Dell to meet its earnings targets. After Intel cut these payments, Dell again misled investors by not disclosing the true reason behind the company's decreased profitability.
According to the SEC's complaint, Intel made exclusivity payments to Dell to prevail upon it not to use CPUs manufactured by its rival Advance Micro Devices, Inc. (AMD).
The SEC said that these exclusivity payments grew from 10 per cent of Dell's operating income in FY 2003 to 38 per cent in FY 2006, and peaked at 76 per cent in the first quarter of FY 2007.