Decision To Settle
In a sudden shift, Dell is now openly pursuing settlement talks with the U.S Securities and Exchange Commission on charges that involve alleged violations of negligence-based fraud provisions of the federal securities laws, as well as other non-fraud based provisions.
Observers speculated that this sudden turnabout by Dell is designed to prevent the SEC from filling formal charges upon their CEO, Michael Dell, that upon conviction, would effectively bar the Chief Executive Officer, Michael S Dell from serving as a Director in the company.
Dell has been steadily losing market share in the global pc business and has dropped to the third largest personal pc maker amidst concerns of poor sales, rising cost and decreased consumer demands. Their CEO, Michael Dell, is a critical part of the company’s business turnaround plan and the possibility of him being barred from the board was unthinkable for the company.
The company is hoping that the SEC will accept the proposed settlement and their terms of neither denying nor admitting to any wrongdoing.
The charges stemmed from allegations of the company’s relationship with Intel, the largest chipmaker in the world.
In an earlier investigation in 2005, Dell was questioned on Intel’s discount practice and payments made to the company by Intel. It resulted in Dell restating their financial results, firing of workers and modification in the company’s corporate governance ethics.
This new investigation is probably over the manner in which Dell recorded their chip discounts from Intel for the five-year period between 2002 and 2007. The SEC investigators are trying to determine if the amount was entered as accrued profit and played a part in the company’s senior executives remuneration for the year and contributed towards the decision to purchase Intel products and not from their competitor, Advance Micro Devices.
Analyst commented that while it can be construed as an aggressive sales practice, it was far removed from any serious anti-competitive behavior.
Insiders have indicated that SEC may be open towards the settlement but they will still pursue limited civil claims against the company for alleged violations of federal securities laws, including antifraud provisions relating to certain accounting and financial reporting matters.
In light of the development, the company has requested a delay from the SEC in submitting their previous quarterly result as they were preparing provisions in the previous quarter statements to set aside the projected $100 million dollars for the proposed settlement.
News of Dell’s decision were greeted with cautious relief by Wall Street executives although their share prices dropped almost 4% to $12.55 after the announcement in extended trading activities. Investors fear that a prolonged negotiation with the SEC will detract the company from its badly needed turnaround plan.
The $100 million dollars settlement provision is not expected to adversely affect Dell based on their $14.8 billion dollar revenue in the preceding financial year and a $341 million dollar profit in the preceding quarter.
SEC spokesman John Nester declined to comment on the matter.