Dell in Talks to Settle Intel Claims With S.E.C.
Share with others:
SAN FRANCISCO -- Dell said on Thursday that it was in talks with the Securities and Exchange Commission to resolve allegations that it and its founder and chief executive, Michael S. Dell, engaged in financial irregularities related to the company's dealings with Intel.
The company said that any settlement would not bar Mr. Dell's service as an officer and director of a public company, and would be made without admitting or denying the agency's allegations.
The disclosure that the S.E.C. has been investigating aspects of the relationship between the two companies is new, as is its focus on Mr. Dell. A person briefed on the case, who agreed to speak on the condition of anonymity because the investigation is confidential, said that the S.E.C.'s allegations related to how Dell accounted for payments and rebates that it had received from Intel. The allegations are not criminal.
Dell also said that it had set aside $100 million for a possible settlement of these allegations, as well a separate long-standing investigation by the S.E.C. into its accounting practices. That investigation, which began in 2005 and became formal in 2006, has already led to admissions of misconduct by Dell and prompted the computer maker to restate financial results from 2003 to the first quarter of 2007.
"We are hopeful that these settlement discussions will achieve a comprehensive resolution in the near future," Sam Nunn, director of Dell's board said in a news release and a former United States senator. As to Mr. Dell's standing with the board's independent directors. Mr. Nunn said, "He continues to have our complete confidence and support."
The relationship between Dell and Intel had already come under scrutiny in an antitrust lawsuit filed in November by Andrew M. Cuomo, the New York attorney general, against Intel.
In that suit, Intel, the world's largest chip maker, was accused of using rebates and co-marketing arrangements as bribes to persuade Dell and other manufacturers to use its products in computers and servers rather than switching to lower-cost chips from its rival, Advanced Micro Devices. Intel has denied the allegations.
Intel declined to comment. Dell declined to comment beyond its news release. A spokesman for the S.E.C., John Nester, also declined to comment.
The company said that Mr. Dell's settlement with the S.E.C. would relate to the "company's disclosures and alleged omissions" and "would involve alleged violations of negligence-based fraud provisions of the federal securities laws, as well as other nonfraud-based provisions."
Dell also said that it would record a $100 million liability for the settlement of its long-standing accounting problems. As a result, it will reduce its net income in the first quarter of fiscal 2011 by the same amount, or 5 cents a share.
Dell's shares dropped about 2 percent in after-hours trading following the company's disclosure. But analysts said the news of a possible settlement should be seen as positive by investors. Since Dell's troubles with the S.E.C. began in 2005, the company stock has lost about two-thirds of its value.
"We didn't know much about the S.E.C. investigation," said Toni Sacconaghi, an analyst with the research firm Sanford C. Bernstein & Company. "I view this as good news. Uncertainty has been taken off the table, and a $100 million fine is nothing for investors." Dell had nearly $11 billion in cash and short-term investments as of April 30.
Mr. Cuomo's lawsuit against Intel revealed e-mail messages between Mr. Dell and Paul S. Otellini, the chief executive of Intel, in which Mr. Dell complained of losing business to rivals using A.M.D. chips. In those conversations, Mr. Otellini reminded Mr. Dell that Intel had paid Dell more than $1 billion in the last year and said that was "more than sufficient to compensate for the competitive issues."
According to the suit, Dell delayed buying chips from A.M.D. and Mr. Otellini later wrote an e-mail message to a colleague describing Dell as "the best friend money can buy."
First Published June 11, 2010 2:00 am