Risk Management

Investors Sue Dell over Alleged Kickback

Investors file a lawsuit claiming that Dell is involved in an alleged kickback deal with chipmaker Intel.
Marie LeoneFebruary 2, 2007

Investors are accusing Dell Inc. of an accounting kickback scheme involving chipmaker Intel Corp., according to a report in The Wall Street Journal. In a lawsuit filed on Wednesday, investors charge that Dell is being paid as much as $1 billion annually by Intel to assure that Dell uses only Intel chips in its computers, noted the Journal.

CFO.com was unable to confirm the report with Dell or lead plaintiff’s attorney William Lerach. Dell spokesman Dwayne Cox told CFO.com that the company “does not comment on pending litigation.” The law firm could not be reached at press time.

The shareholder suit, which was filed in U.S. District Court in Austin, Texas, is the second that law firm Lerach Coughlin Stoia Geller Rudman & Robbins has filed against Dell in recent months. In September, it filed a suit on behalf of Dell investors claiming that the computer maker and certain officers and directors of the company caused Dell to report inflated financial results, “including misstating the reserves reported to the Company’s balance sheet.”

The September suit was likely sparked by a regulatory filing Dell issued in December in which it disclosed that it needed more time to file its fiscal third-quarter results for the period ended November 3 “due to questions raised” in connection with ongoing investigations by the Securities and Exchange Commission, the company’s audit committee, and the U.S. Attorney for the Southern District of New York.

Dell had previously stated that the probes were related to certain accounting and financial-reporting matters, including the possibility of misstatements in prior financial reports and issues relating to reserves and other balance-sheet items that may affect the company’s previously reported results.

The company made headlines earlier this week when Michael Dell announced he would return as chief executive officer of the company he founded, while retaining the position of chairman. He replaces Kevin Rollins, who took the helm three years ago. Rollins also resigned from the board of directors. At the time, Dell also announced it expects its fiscal fourth-quarter results to be below the average of First Call estimates for both revenue and earnings per share.

The shuffle at the top is the second for the company in little more than a month. In December, chief financial officer James M. Schneider departed to become executive chairman of Frontier Bancshares.

Dell is currently working to meet its stock-exchange listing requirements and SEC filing deadlines. On January 23, the company announced in a regulatory filing that it must provide Nasdaq with certain information regarding the previously announced audit-committee investigation by March 1, and file its delinquent periodic financial reports by March 14, to retain its listing on the exchange.

The company also said it expects to supply Nasdaq with the requested information by the March 1 deadline. And while it is working “diligently” to file the delinquent reports with the SEC as soon as possible, Dell does not expect to meet the March 14 deadline. However, the company plans to ask the Nasdaq Listing and Hearing Review Council for additional time to file the quarterly reports, “but there can be no assurance that the Council will grant the company’s request,” noted the filing.