February 2, 2007 12:16 PM PST

Shareholders file expanded Dell lawsuit, attack Intel rebates

Shareholders have filed an expanded securities-related lawsuit against Dell, adding Intel as a defendant over the chipmaker's controversial marketing rebate program.

The expanded complaint, filed earlier this week in U.S. District Court in Austin, Texas, alleges that the computer giant failed to make required disclosures to the Securities and Exchange Commission and investors about the "existence, impact and uncertainty of Intel rebates." The lawsuit also names additional Dell executives and Dell's auditor, PricewaterhouseCoopers, to the complaint.

Intel's rebate program has been the subject of antitrust action in Japan and is under investigation in Europe, as well as in Korea with the Korean Fair Trade Commission.

"Intel secretly paid very large end-of-quarter cash rebates to PC (manufacturers), like Dell, that purchased all or virtually all of their microprocessor/chip requirements from Intel," the amended lawsuit states. "These rebates, which were, in fact, kickbacks, were not traditional volume-based discounts and the monies paid were separate and apart from and in addition to certain publicly known, co-marketing funds which Intel made available to certain of its customers to assist in product advertising."

The lawsuit further alleges that Intel insisted Dell not disclose the existence of the rebate payments in the computer maker's SEC filings or to Wall Street for fear it would come under scrutiny with antitrust regulators.

Dell allegedly received roughly $1 billion a year from the rebates, which accounted for approximately 10 percent of its gross profits, the lawsuit claims.

Dell declined to comment on Friday, citing the pending litigation.

Intel, meanwhile, issued a strong statement defending its rebate program.

"We conducted a preliminary review of the complaint. At first glance, it appears that some of the allegations with respect to Intel appear to have been completely made up," Chuck Mulloy, an Intel spokesman said Friday.

Intel further notes that while the shareholders group cites antitrust allegations, the chip giant is not facing any antitrust claims.

"We deny the plaintiffs' allegations and plan to move quickly to defend ourselves," Mulloy noted.

The shareholders' lawsuit, meanwhile, alleges that investors were denied a complete picture of Dell's finances without information on the scope and size of Intel's rebate program.

The plaintiffs are seeking compensatory damages, and restrictions on the transfer of insider sales proceeds to individual defendants, among other things. The original lawsuit was filed in September 2006.

See more CNET content tagged:
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4 comments

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You mean that's illegal?
Cause evryone knows its been going on for YEARS...

Customer choice indeed.
Posted by Yukimi Konomi (48 comments )
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Was It Worth Lost AMD Sales?
The question is, did the sales that Dell lost to competitors that offered better value AMD based PC exceed the amount in kickbacks from Intel. "To profit, or not to profit. That is the question.".
Posted by Stating (869 comments )
Reply Link Flag
Where Was Dell's Chief Ethics Officer?
How can I get a job as a 6-figure Chief Ethics Officer? Do they do anything besides play golf all day long?


<a class="jive-link-external" href="http://www.dell.com/content/topics/global.aspx/corp/pressoffice/en/2004/2004_05_05_rr_000?c=us&#38;cs=555&#38;l=en&#38;s=biz" target="_newWindow">http://www.dell.com/content/topics/global.aspx/corp/pressoffice/en/2004/2004_05_05_rr_000?c=us&#38;cs=555&#38;l=en&#38;s=biz</a>

"Dell President, COO Kevin Rollins Calls on Businesses to Go Beyond Corporate Governance Reforms

'Trust must be earned. It can't be legislated,' the newly appointed CEO of Dell said.
Round Rock, Texas, May 5, 2004

Dell President and Chief Operating Officer Kevin Rollins called on business leaders to adopt a higher level of ethics and integrity in order to regain the trust of employees, customers, shareholders and government.

Rollins, who will become Dell's next chief executive officer in July, cautioned that skepticism about business will perpetuate skepticism about the economy. He urged business leaders to embrace transparent business models and build individual and corporate accountability into the fabric of their companies and into business culture. His comments were made at an American Enterprise Institute event on the impact of Sarbanes-Oxley, which became law two years ago.

"Every business grapples with a range of competitive issues. But skepticism about corporate behavior and performance is perhaps the most insipid because it breeds complacency in our companies, in the marketplace and in the economy," Mr. Rollins said. "Our goals for our country and our companies will go unfulfilled if we do not demonstrate integrity at every level and earn the trust of our many stakeholders."

"We can begin to repair that fragile trust over time by adopting transparent business models and corporate cultures that set expectations for individual and company performance beyond the numbers."
Posted by Stating (869 comments )
Reply Link Flag
Dell & Intel in collusion...Who wudda thought?
The law suit is news but the rest of it is common knowledge. Now the non-filing of income in their required SEC reports only supports AMDs claim of about 2 years that this was going on and nothing was being done about it.
Isn't this called "racketeering?
Posted by fred dunn (793 comments )
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