Dell Investors File Suit Over Accounting Practices

Shortly after the resignation of its chief executive, Dell was reeling from another blow when a group of investors filed a lawsuit on Wednesday alleging that the company had used illegal accounting methods to hide secret kickback payments paid by Intel.

The payments from Intel were meant to ensure that Dell used only Intel processors in its PCs, according to the suit. The investors filing the suit asked the U.S. District Court in Austin, Texas, to give the case class-action status, saying that Dell shareholders were harmed when Dell inflated its profits.

Intel denies the charges. A Dell spokeswoman said the company does not comment on pending litigation. In May, Dell announced it would also begin selling PCs and servers using chips from Intel’s rival, Advanced Micro Devices (AMD).

The investors claim that Dell’s profits were inflated by hundreds of millions of dollars, The Wall Street Journal reported on Friday.

Dell is struggling through a brutal series of events, culminating in the resignation on Wednesday of CEO Kevin Rollins after just two years at the helm. The company’s founder and namesake, Michael Dell, will resume that job, taking up the fight to convince Wall Street that he can turn around sinking profits. After missing its earnings targets for recent quarters, Dell lost its mantle as the world’s largest PC vendor to its surging rival Hewlett-Packard.

The new accusation echoes several ongoing lawsuits against the two companies. In August, regulators from the U.S. Securities and Exchange Commission (SEC) and the U.S. attorney for the Southern District of New York launched an investigation of Dell’s accounting practices. Since then, Dell has failed to file its quarterly earnings numbers for the periods ending Aug. 4, 2006 and Nov. 3, 2006, leading the Nasdaq stock exchange to decree it will drop Dell from its listing board unless the company opens its books by March 14.

And in December, a U.S. judge ordered Intel to share information about its overseas business practices to answer charges by AMD that it paid illegal cash rebates and discounts to dissuade PC vendors and retailers from using AMD’s processors. That case is scheduled to be argued in court in April 2009.

Intel denied the new allegations, saying they were merely a copy of the AMD case, and that it had already refuted those charges.

“We’ve conducted a preliminary review of the matter, and at first glance it appears that some of the allegations with regard to Intel may be made up,” said Intel spokesman Chuck Mulloy. “While they rehash antitrust allegations from other cases, there is no [new] antitrust claim. Intel denies the plaintiffs’ allegations and plans to move quickly to defend itself.”

As evidence that it has no connection to Dell’s accounting practices, Mulloy said that Intel has not been contacted by investigators from the SEC or the Department of Justice.

-Ben Ames, IDG News Service (Boston Bureau)

Related Links:

• Michael Dell Back in Charge as Rollins Departs Dell

• HP Tops Dell Again as PC Sales Continue to Slow

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