Dell and its CEO, Michael Dell, have reached a settlement over fraud charges. Dell will pay $100 million, Michael Dell $4 million.
The fraud allegations concern Dell’s failure to disclose the nature and extent of its relationship with Intel.
The SEC says Dell would have missed consensus EPS forecasts for every quarter from 2002-2006 if not for the fraud.
Michael Dell’s settlement does not include any admission of fraudulent intent, and does not place any restrictions on his remaining with the company.
ROUND ROCK, Texas – (Business Wire) Dell Inc. today announced that it has reached a settlement with the U.S. Securities and Exchange Commission (SEC) resolving the previously disclosed SEC investigation into Dell’s disclosures and alleged omissions prior to Fiscal 2008 regarding certain aspects of its commercial relationship with Intel Corporation and into separate accounting and financial reporting matters. The settlement terms are consistent with the settlement framework disclosed by the company on June 10, 2010.
The SEC has agreed to settlements with both the company and Michael Dell, the company’s chairman and CEO. The company and Mr. Dell entered into the settlements without admitting or denying the allegations in the SEC’s complaint, as is consistent with standard SEC practice. The settlements with the company and Mr. Dell are subject to approval by a U.S. District Court.
The SEC’s complaint filed with the U.S. District Court today alleges that the company engaged in disclosure and accounting practices that violated certain federal securities laws and SEC rules (including antifraud provisions) during the period from 2001 to 2006. Under its settlement, the company has consented to a permanent injunction against future violations of such federal securities laws and SEC rules. The company also has agreed to perform certain undertakings, including retaining an independent consultant, to enhance its disclosure processes, practices and controls.
The company’s settlement requires it to pay a civil monetary penalty of $100 million. As announced in June, in its first quarter of Fiscal 2011 the company established a reserve in that amount for the potential settlement of the SEC investigation.
The SEC’s allegations with respect to Mr. Dell and his settlement are limited to the alleged failure to provide adequate disclosures with respect to the company’s commercial relationship with Intel prior to Fiscal 2008. Mr. Dell’s settlement does not involve any of the separate accounting fraud charges being settled by the company and others. Moreover, Mr. Dell’s settlement is limited to claims in which only negligence, and not fraudulent intent, is required to establish liability, as well as secondary liability claims for other non-fraud charges.
Under his settlement, Mr. Dell has consented to a permanent injunction against future violations of these negligence-based provisions and other non-fraud based provisions of certain federal securities laws and SEC rules. In addition, Mr. Dell has agreed to pay a civil monetary penalty of $4 million. The settlement does not include any restrictions on Mr. Dell’s continued service as an officer or director of the company.
Sam Nunn, presiding director of the Dell Board, said, “The Board believes that this settlement is in the best interest of the company, its customers and its shareholders, as it brings a five-year SEC investigation to closure. Dell’s Board reaffirms its unanimous support for Michael Dell’s continued leadership, and the management team in its ongoing commitment to transparent accounting, integrity in financial reporting and strong corporate governance.”
Mr. Dell said, “We are pleased to have resolved this matter. We are committed to maintaining clear and accurate reporting of our periodic results, supporting our customers, and executing our growth strategy.”