Dell: Cost of accounting fraud...$100 million and approved by Judge

Michael Dell did not have to admit

nor deny wrongdoing in the settlement

and stated the company has made efforts to

improve its accounting and disclosures

(do not attempt this at home, as publically traded CEOs

are professionals...they do not go to jail)

By William McQuillen
10/13/10
Oct. 13 (Bloomberg) -- Dell Inc., the world’s third-biggest maker of personal computers, won a judge’s permission to pay $100 million to settle accounting-fraud claims brought by the U.S. Securities and Exchange Commission.

The accord reached in July allows founder Michael Dell to remain chief executive officer after paying a $4 million fine. U.S. District Judge Richard Leon approved the settlement today at a hearing in Washington.

Dell, 45, and the personal-computer maker failed to tell investors about “exclusivity payments” received from Intel Corp. in exchange for shunning products made by rival chipmaker Advanced Micro Devices Inc., the SEC said in a complaint filed in July. The payments allegedly helped Dell reach earnings targets from 2001 to 2006.

Dell, appearing in court, told Leon he had nothing to do with the company’s settlement when asked by the judge how he avoided a possible conflict of interest with his own accord.

“It was appropriate for all that to be handled by independent directors,” Dell said.

The exclusivity payments were at issue in an antitrust lawsuit filed against Intel by AMD, a New York state probe of Intel’s business practices, and a Federal Trade Commission suit brought against Intel in December. Dell, based in Round Rock, Texas, said in June that it had set aside $100 million for the SEC settlement.

Efforts to Improve

Without admitting or denying wrongdoing in the settlement, the company has made efforts to improve its accounting and disclosures, Michael Dell said.

Dell’s former CEO, Kevin Rollins, and James Schneider, the company’s former chief financial officer, agreed to pay fines of $4 million and $3 million, respectively. Schneider was suspended from appearing or practicing before the SEC as an accountant for five years. The SEC, as urged by the company in its settlement proposal, spared Michael Dell similar punishment.

John Worland, an attorney for the SEC, said the settlement was appropriate and that there isn’t evidence the company intended to defraud.

“The settlement is appropriate” and “represents a strong example of regulatory enforcement,” Worland said.

The case is Securities and Exchange Commission v. Dell Inc., 10cv1245, U.S. District Court for the District of Columbia (Washington).

Dell Revises Fiscal 2011 First Quarter Results

Dell Revises Fiscal 2011 First Quarter Results to Reflect Potential Legal Liability

ROUND ROCK, Texas--(BUSINESS WIRE)--Dell today said as a result of ongoing discussions with the staff of the U.S. Securities and Exchange Commission (SEC), the company recorded a $100 million liability in its first quarter of Fiscal 2011 to establish a reserve for the potential settlement by the company of the previously reported SEC investigation. The settlement would involve a civil injunctive action against the company for alleged violations of certain federal securities laws, including the antifraud provisions of federal securities laws, relating to certain accounting and financial reporting matters. The settlement would also include negligence-based fraud charges, as well as other non-fraud based charges, relating to the company’s disclosures and alleged omissions prior to Fiscal 2008 regarding certain aspects of its commercial relationship with Intel Corp.

In addition, the company reported that Michael Dell, Chairman and CEO, and the SEC staff have recently commenced discussion of a settlement framework relating to Mr. Dell that would resolve allegations relating to the company’s disclosures and alleged omissions prior to Fiscal 2008 regarding certain aspects of the company’s commercial relationship with Intel Corp. Any such settlement by Mr. Dell would involve alleged violations of negligence-based fraud provisions of the federal securities laws, as well as other non-fraud based provisions, and would not include any bar against Mr. Dell’s service as an officer and director of a public company. Any settlement would be made without admitting or denying the SEC’s allegations.

“We are hopeful that these settlement discussions will achieve a comprehensive resolution in the near future. The independent directors of the Board have affirmed that Michael Dell will continue to lead the company as its Chairman and CEO, and he continues to have our complete confidence and support,” said Sam Nunn, presiding director of the Dell Board.

The investigation of the company began in 2005. In response, Dell undertook an independent investigation, completed in 2007, which led to a restatement of certain historical financial reports and implementation of extensive remedial measures.

As a result of the liability recorded, the company’s net income on a GAAP basis for the first quarter of Fiscal 2011 has been reduced by $100 million, or 5 cents per share. Results on a non-GAAP basis did not change.
Link to complete press release