Dell in US$100m fraud settlement with SEC

23 Jul 2010

Dell has agreed to pay the US Securities and Exchanges Commission US$100m and CEO and founder Michael Dell will pay another US$4m to settle a long-running case over alleged fraudulent accounting methods to achieve earnings targets.

Dell allegedly also failed to tell regulatory authorities about “exclusivity payments” from Intel to forego using rival chipmakers’ products, the SEC said. After Intel cut these payments, Dell again misled investors by not disclosing the true reason behind the company’s decreased profitability, the SEC said.

Dell Inc. agreed to pay a US$100m penalty to settle the SEC’s charges. Michael Dell and former CEO Kevin Rollins each agreed to pay a US$4m penalty, and former CFO James Schneider agreed to pay US$3m, to settle the SEC’s charges against them.

“The board believes that this settlement is in the best interest of the company, its customers and its shareholders, as it brings a five-year SEC investigation to closure,” said Sam Nunn, presiding director of the Dell Board.

“Dell’s board reaffirms its unanimous support for Michael Dell’s continued leadership, and the management team in its ongoing commitment to transparent accounting, integrity in financial reporting and strong corporate governance.”

The settlements with the company and Michael Dell are subject to approval by a US District Court.

Dell founder’s response to case

Michael Dell commented: “We are pleased to have resolved this matter. We are committed to maintaining clear and accurate reporting of our periodic results, supporting our customers, and executing our growth strategy.”

“Accuracy and completeness are the touchstones of public company disclosure under the federal securities laws,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “Michael Dell and other senior Dell executives fell short of that standard repeatedly over many years, and today they are held accountable.”

Christopher Conte, associate director of the SEC’s Division of Enforcement, added: “Dell manipulated its accounting over an extended period to project financial results that the company wished it had achieved, but could not. Dell was only able to meet Wall Street targets consistently during this period by breaking the rules. The financial results that public companies communicate to the investing public must reflect reality.”

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years