Dell Pays $100 Million to Settle Fraud Charges From SEC

A five-year investigation by the Securities and Exchange Commission against computer maker Dell (News - Alert) came to an end yesterday with Dell agreeing to pay $100 million to settle fraudulent accounting charges.

As per the SEC regulators, Dell used payments from semiconductor giant Intel (News - Alert) to boost its profits to meet Wall Street earnings targets, according to news reports. And, in exchange, the computer maker agreed not to use CPUs manufactured by Intel’s rival Advanced Micro Devices (AMD (News - Alert)) without disclosing it to its investors. These payments were so huge that they accounted for 76 percent of Dell's operating income in the first quarter of 2007.

And, in several other quarters, the payments were running in double-digit percentages of its earnings, according to SEC (News - Alert).

In a prepared statement, SEC said, “It was these payments, rather than the company's management and operations, that allowed Dell to meet its earnings targets."

Christopher Conte, Associate Director of the SEC’s Division of Enforcement, added, “Dell manipulated its accounting over an extended period to project financial results that the company wished it had achieved, but could not. 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.”

Under this settlement, the SEC also found that chairman and CEO Michael Dell, along with several other high-ranking company executives, played a role in the disclosure violations. Consequently, Dell agreed to separately pay a $4 million civil penalty out of his own pocket. The SEC charged former CFO James Schneider, former regional vice president of finance Nicholas Dunning, and former assistant controller Leslie Jackson for their roles in the improper accounting. Schneider agreed to pay $3 million, to settle the SEC’s charges against him.

Despite SEC's investigation, the company board has permitted Dell to continue as CEO and chairman of the board.

This investigation into the computer giant’s fraudulent activities and financial misappropriations started in August 2005. But, it was not until 2008 that Dell acknowledged accounting irregularities.