Dell faces another investor lawsuit
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Class-action filing accuses PC maker of inflating profit with payments from Intel, concealing accounting issues.
By David Koenig
ASSOCIATED PRESS
Saturday, February 03, 2007
A new class-action lawsuit claims that computer maker Dell Inc. inflated profits with secret payments of about $1 billion a year from chip maker Intel Corp.
The lawsuit was filed Wednesday, when the company announced that founder Michael Dell would return to the chief executive's role amid more disappointing financial news.
Filed in U.S. District Court in Austin, the lawsuit also claims that Dell concealed problems in accounting and product quality from shareholders while executives received $3.3 billion from selling their stock.
Dell spokesman Dwayne Cox declined comment Friday on the lawsuit and wouldn't say whether the company had received payments from Intel.
A spokesman for Intel, which was also named as a defendant, said the company has done nothing wrong and it will fight the lawsuit. Chuck Mulloy said that some of the charges "appear to have been completely made up" and that Intel payments to Dell were legal.
"It's pricing. It's discounting," Mulloy said. "It's a normal business practice. Our business practices are both fair and lawful."
Mulloy declined to describe the payments to Dell, saying it was a private matter.
But he said the company had not been contacted by securities regulators or federal prosecutors.
The case was filed by Lerach, Coughlin, Stoia, Geller, Rudman & Robbins LLP on behalf of two institutional investors.
Mary Blasy, one of the lawyers, said that the plaintiffs don't claim the payments were illegal.
Rather, she said, they think that Dell cheated investors by concealing the payments, which the company didn't control and which gave a false picture of Dell's financial strength.
The lawsuit charges that Dell got the payments for shipping only Intel-based products and not doing business with Advanced Micro Devices Inc. Dell began using AMD chips last year.
The payments to Dell were mentioned in an antitrust lawsuit that AMD filed against Intel in 2005.
The Lerach, Coughlin law firm learned about the size of the payments from Dell insiders, Blasy said.
The lawsuit named as defendants Dell and 16 current and former officials; Intel; and Dell's accounting firm, PricewaterhouseCoopers LLP. It seeks class-action status for investors who bought Dell stock from February 2003 to September 2006.
Other lawyers continue to file securities lawsuits against Dell, whose shares have lost nearly half their value in the past two years while the stock of rival Hewlett-Packard Co. doubled.
Last week, lawyers for a Maryland investor filed a lawsuit charging Michael Dell, former CEO Kevin Rollins and other executives with unjust enrichment and gross mismanagement.
Both lawsuits claim that Dell executives pushed the stock to artificially high levels by making false statements about the company's operations dating to early 2003.
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