Dell Settles $100 Million Financial Fraud Charge -- Redmondmag.com

Dell Settles $100 Million Financial Fraud Charge

By Chris Paoli
07/23/2010

Dell Inc. announced on Thursday that it reached a settlement with the U.S. Securities and Exchange Commission (SEC) over financial fraud allegations.

The company will pay $100 million for its alleged tampering of accounting and financial records with regard to its relationship with Intel. The SEC complaint stated that Dell hid information concerning payments from Intel from 2001 to 2006 to artificially inflate Dell's projected earnings.

The SEC's 61-page allegation discussed how Intel apparently paid Dell larger payments so that the company could hit its financial goals for the span of time in question. However, Dell cited "declining component costs" and improved "cost reduction initiatives" to investors for the company's continuous increase in profit margin, while omitting the facts of Intel's "secret" payments. The complaint also states that these ballooned payments accounted for 76 percent of the company's 2007 operating income.

The settlement also includes Dell CEO Michael Dell paying the SEC $4 million for his part in the complaint. According to a company press release, "The SEC's allegations with respect to Mr. Dell and his settlement are limited to the alleged failure to provide adequate disclosures with respect to the company's commercial relationship with Intel prior to Fiscal 2008."

Along with the monetary settlement, the company agreed to instigate certain changes to its financial reporting. The agreement includes enhancing its disclosure process, controls and practices and retaining the services of an independent consultant for financial matters.

On the news of the settlement, the presiding director of Dell's board, Sam Nunn, said, "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. 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."

Reaction from investors appeared muted. The company's stock stayed positive near the end of market trading today.

About the Author

Chris Paoli (@ChrisPaoli5) is the associate editor for Converge360.

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