US company, Dell, who recently cut a deal with JB Hi Fi to sell their PC goods, has agreed to pay over $100 Million dollars to settle an investigation into accounting fraud, bribery by Intel and company manipulation, while its Chief Executive, Michael Dell, has agreed to pay a $4 Million dollar fine.
But despite the massive payouts and overwhelming evidence collected by the US Securities & Exchange Commission, Michael Dell and the Dell board wants the world to believe that they are not guilty despite stumping up millions in fines.
Michael Dell, who joins a chorus of shonky US Bank CEO’s who are being credited with the collapse of the global economy is accused of running a company that has, over several years, been improperly hiding the effect of massive payments from chip making giant Intel which inflated its earnings and misled investors.
The payments by Intel to Dell – as much as US$720 million in a single quarter – were allegedly made to ensure Dell did not use chips from rival AMD.
Despite the overwhelming evidence and the payment of massive fines, the board has given Michael Dell and other executives who were fined, their “overwhelming support”.
Kevin Rollins, Dell’s former CEO, has also agreed to pay a $4 million penalty, while former CFO James Schneider will pay $3 million.
None of the executives involved have been suspended from running a company despite allegations that Dell fiddled its books to conceal growing Intel payments that were used to create an illusion of financial success between 2002 and 2006.
During much of that time, Dell’s share price nearly doubled, and analysts credited the company’s efficient supply chain and direct-sales strategy for its fast growth.
Documents published by the SEC reveal that Rollins, in December 2004, had warned Michael Dell that in fact “Intel money” was responsible for the company’s good financial showing. It was “a bad way to run a railroad,” Rollins wrote.
According to the SEC, Kevin Rollins, Dell’s chief executive for part of the period in question, bragged in 2004 that Dell’s ability to meet or exceed Wall Street expectations for 12 quarters in a row was “driven by our tightly controlled supply chain, highly efficient infrastructure and direct relationships with customers.”
And yet, at around the same time, Mr. Rollins wrote to Michael S. Dell, the company’s founder, saying that “for three quarters now, Intel money has made the quarter.
A bad way to run the railroad,” according to the SEC.
Later, Mr. Rollins wrote to Mr. Dell about Intel, saying: “We are going to have to get off their drug . . . “. There was much more.
The SEC alleges Michael Dell and other executives repeatedly cited to investors “cost reduction initiatives” and “declining component costs” as the reason for Dell’s growing profit margins when they knew the increase was due to Intel’s payments.
In the first quarter of fiscal 2007, the payments amounted to more than $720 million, or 76 per cent of Dell’s operating profit.
In Australia, Dell is struggling, as they attempt to change their sales model from direct sell to selling via stores like Officeworks and JB Hi Fi.
Both locally and in the USA, Dell is declining to comment on the allegations. It is expected that shareholder claims will follow the payment of fines.
