Dell Faces Investor Lawsuit Over Kickbacks

An investor lawsuit filed last week against computer maker Dell by the Lerach Coughlin law firm in Austin, Texas, alleges the company accepted and then tried to cover up up to $1 billion in “secret and likely illegal” payments from shipmaker Intel. According to the complaint (PDF), the “exception to corporate average pricing” (e-CAP) payments had a material impact on Dell’s reported profits to the tune of around $250 million per quarter; in exchange, Dell exclusively utilized Intel processors in its products.

Intel has denied the allegations, claiming they’re just a rehash of similar charges made by rival chip-maker AMD in 2005. Dell has yet to comment. According to the complaint, Intel insisted on only a small handful of upper managers at Dell be aware of the arrangement in order to avoid antitrust scrutiny. Intel characterizes the payments as “rebates,” while the complaint repeatedly characterizes as “kickbacks.” The complaint names a total of 16 defendants, including current anf former CEOs Michael Dell and Kevin Rollins, and well as PriceWaterhouseCoopers, the company’s accounting firm.

It’s been widely known in the computing industry that Intel pays marketing fees to its partners for the display of the Intel logo on computers, as well as its use in advertising and other media promoting the products. Although such payments are not necessarily illegal, Dell does not separate such “reimbursements” in its financial statements; many financial analysts maintain that, if legal, such payments should be fully disclosed by all parties.

Dell accounting practices are currently under investigation by the U.S. Securities and Exchange Commission and the U.S. Justice Department. The lawsuit falls just as Michael Dell re-takes the company’s CEO position in an effort to fight off a serious challenge from Hewlett-Packard for the title of top computer maker.

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