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, the same day the company announced that founder Michael S. 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 claimed that Dell concealed problems in accounting and product quality from shareholders while company executives reaped $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 had done nothing wrong and vowed to fight the lawsuit. He 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,” said the Intel spokesman, Chuck Mulloy. “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 of pricing with a customer. He said the company had not been contacted by securities regulators or federal prosecutors.
The case was filed by the class-action firm of lawsuit firm of Lerach, Coughlin, Stoia, Geller, Rudman & Robbins LLP on behalf of two institutional investors.
Mary Blasy, one of the lawyers who filed the lawsuit, said in an interview that the plaintiffs don’t claim that the payments were illegal. Rather, she said, they believed Dell cheated investors by concealing the payments, which the company didn’t control and gave a false picture of Dell’s financial strength.
The lawsuit charges that Dell got the Intel payments “for shipping only Intel-based products and not doing business with AMD,” Advanced Micro Devices Inc. Dell began using chips from Intel’s rival last year.
The payments to Dell were mentioned in an ongoing antitrust lawsuit that AMD filed against Intel in 2005. The Lerach law firm learned 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 Round Rock-based Dell, whose shares have lost nearly half their value in the past two years while stock of rival PC maker Hewlett-Packard Co. doubled. Dell shares fell 31 cents, or 1.3 percent, to $23.49 in mid-afternoon trading Friday on the Nasdaq Stock Market.
Last week, lawyers for a Maryland investor filed a lawsuit in the same Austin court on behalf of Dell. The derivative lawsuit charged that Michael Dell, former CEO Kevin Rollins and other executives with unjust enrichment and gross mismanagement.
Both the recent 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. They said Dell leaders withheld knowledge about such problems as faulty laptop computer batteries that were later recalled and a Securities and Exchange Commission investigation of Dell.
The lawsuits come at a tumultuous time for Dell. This week, Michael Dell stepped back into the CEO’s role that he had turned over to Rollins in 2004. The same day, Dell said it expects fourth-quarter sales and earnings to be below Wall Street estimates.
Dell has been losing market share to rivals and failing to meet Wall Street’s expectations for higher earnings. The company’s image was also battered in August by the voluntary recall of 4.2 million laptop batteries made by Sony Corp. and the disclosure of an ongoing SEC probe into accounting issues.