Dell will pay $100 million to settle a five-year investigation by the SEC into accounting issues surrounding Dell's relationship with Intel. Intel is said to have paid Dell not to use AMD processors in its desktops and notebooks. In addition, CEO Michael Dell will pay a $4 million fine for his role in the accounting case.
Dell will pay $100 million and CEO
Michael Dell will pay $4 million to settle investigations by federal regulators
into accounting issues surrounding the computer maker's relationship with
and the Securities and Exchange Commission
announced the settlement July
22, six days after company officials announced they had given the SEC
a settlement proposal.
Dell already had revised its fiscal 2011 first-quarter
financial numbers to reflect a possible $100 million fine.
In charges filed in U.S. District Court July 22, the SEC
claimed that from 2001 to 2006, Dell violated federal securities laws and SEC
rules and anti-fraud regulations in its accounting practices. In particular,
according to the SEC, Dell executives failed to let investors know about large
payments from Intel that had been made to convince Dell not to use processors
from Advanced Micro Devices in its systems.
"It was these payments rather than the company's
management and operations that allowed Dell to meet its earnings targets,"
the SEC said in a statement July 22. "After Intel cut these payments, Dell
again misled investors by not disclosing the true reason behind the company's
Michael Dell, former CEO
Kevin Rollins and other Dell executives were charged for their roles in the
disclosure violations, the SEC said.
Intel's business practices have been under scrutiny for years.
The chip giant has been fined or sued in several countries over the past
several years for allegedly using its dominance in the x86 processor market to
coerce OEMs, including Dell and Hewlett-Packard, to limit their use of AMD
products. Dell was the last of the top-tier systems makers to use AMD
The Federal Trade Commission announced July 22 that it will review
settlement of a suit against Intel
over the next two weeks. Intel also is
being sued by the New York Attorney General's Office and graphics chip maker
Nvidia. The N.Y. Attorney General's Office has focused much of its attention on
between Intel and Dell.
Intel was fined $1.45 billion in 2009 by the European
Commission and paid AMD $1.25 billion in the
same year as part of a settlement of legal disputes between those two
Intel officials have denied any wrongdoing, saying the
company's aggressive business practices were well within the limits of the law.
Along with the fine, Dell officials were required to agree not
to violate SEC accounting laws and to bring in an independent consultant to
improve the company's disclosure practices. Michael Dell also agreed to not
violate SEC regulations in the future.
Neither he nor his namesake company admitted or denied the SEC's
"We are pleased to have resolved this matter," Michael
Dell said in a statement.
"We are committed to maintaining clear and
accurate reporting of our periodic results, supporting our customers, and
executing our growth strategy."
Robert Khuzami, director of the SEC's Division of Enforcement,
said Dell's actions called for punishment.
"Accuracy and completeness are the touchstones of public
company disclosure under the federal securities laws," Khuzami said in a
statement. "Michael Dell and other senior Dell executives fell short of
that standard repeatedly over many years, and today they are held
According to the SEC, the exclusivity payments from Intel
accounted for 10 percent of Dell's operating income in fiscal year 2003, and grew
to 38 percent in fiscal year 2006 and then to 76 percent in fiscal year 2007.
Intel cut its payments in 2007, after Dell officials announced
that the company was going to start using AMD
products in its systems, according to the SEC. That led to a drastic drop in
Dell's operating budget in the second quarter of that year-the cut in Intel
payments equaled 75 percent of the decline in Dell's operating income, the
agency said. Dell, Rollins and others had been warned by Intel that those
payments would be cut should they opt to use AMD
Despite all that, no Dell executive admitted to investors that
the drastic drop in the company's operating budget was due to the reduction of payments
from Intel. Instead, they said during the quarterly earnings call that it was
due to Dell cutting prices to bolster slowing demand, and component costs
remaining higher than expected.
The SEC also claimed that Dell executives manipulated the
company's reserves to enable them to misstate earnings and operating expenses.
"Dell manipulated its accounting over an extended period to
project financial results that the company wished it had achieved, but could
not," Christopher Conte, associate director of the SEC's Division of
Enforcement, said in a statement. "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