Dell has agreed to pay $100 million to settle US Security and Exchange Commission charges that it failed to disclose information to investors and used fraudulent accounting practices to give the false impression it was meeting Wall Street earnings targets.
Separately, Michael Dell – the company's founder, chairman, and CEO – agreed to pay $4m to settle charges that he played a role in the disclosure violations.
Last month, the company set aside $100 million from its first quarter profits as a potential settlement, and it said that Michael Dell was discussing a separate settlement.
The SEC also charged former CEO Kevin Rollins and former CFO James Schneider with disclosure violations, and it charged Schneider, former regional vice president of finance Nicholas Dunning, and former assistant controller Leslie Jackson with violations related to improper accounting.
Like Dell, Rollins agreed to pay a $4 million fine, and Schneider agreed to pay $3 million. Dunning and Jackson also agreed to settle.
"Dell manipulated its accounting over an extended period to project financial results that the company wished it had achieved, but could not," reads a canned statement from Christopher Conte, associate director of the SEC’s division of enforcement. "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."
The SEC launched its investigation into the company in 2005, and the next year, Dell announced that the company had launched an internal investigation into its accounting and financial-reporting practices. Then, in 2007, the company said it had manipulated financial results between 2003 and 2006 and announced that income during that period would be reduced by between $50m and $150m. The original figure was $12bn.
The SEC complaint alleges that Dell did not disclose large payments the company received from Intel to not use CPUs manufactured by rival AMD. And after Intel stopped the payments, the complaint says, Dell misled investors by failing to disclose why its profits had dropped.
Without the Intel payments, the complaint says, Dell would have missed consensus analyst EPS estimates in every quarter from 2002 through 2006. According to the complaint, the payments grew from 10 per cent of Dell’s operating income in 2003 to 38 per cent in 2006. The payments peaked in 2007 at 76 per cent.
The complaint says that Intel cut the payments in the second quarter of 2007 after Dell said it would start using AMD chips and that Michael Dell, Rollins, and Schneider told investors that the company’s profits had dropped because it had set prices too high as demand slowed.
The company settled without admitting or denying the SEC's charges. ®