Dell Reserves $100 Million to Settle SEC Case (DELL, INTC, AMD)

After the markets closed yesterday, Dell Computer Inc. (NASDAQ: DELL) announced that the company had recorded a $100 million liability in its first fiscal quarter of 2011, ended April 30, 2010, “to establish a reserve for the potential settlement by the company of the previously reported SEC investigation.” The investigation began in 2005 and is believed to be tied to an investigation into anti-competitive practices by Intel Corp. (NASDAQ: INTC). The SEC action against Intel alleges that the chip maker broke anti-trust laws by offering large cash rebates to computer makers that used its processors. The alleged rebates were supposedly paid to stem computer maker purchases of chips from Intel rival Advanced Micro Devices, Inc. (NYSE: AMD).

The attorney general of New York filed suit against Intel in November 2009, alleging that the chip maker paid Dell Computer $6 billion in rebates between February 2002 and January 2007. Intel has denied the charges, countering that any rebates were merely a way for the company to meet competitor pricing.

The announcement reveals clearly that Dell’s chairman/CEO Michael Dell is the central figure of the SEC investigation and is alleged to have run afoul of “negligence-based fraud provisions” of US law in the company’s relationship with Intel. In its announcement yesterday, the company said the $100 million also includes a potential settlement of the charges against Dell himself.

The presiding direct of Dell Computer’s board noted that Michael Dell “will continue to lead the company as its Chairman and CEO, and he continues to have our complete confidence and support.”

Dell Computer has revealed little about the investigation in the five years since it started. In fact, the company did not reveal the fact of the SEC inquiry until 2006, a year after it commenced. The company conducted its ! own inte rnal investigation which it completed in 2007. According to The Wall Street Journal, that internal inquiry showed that “senior executives and other employees manipulated company accounts to hit quarterly performance goals.”

While publicly available details are scarce, the broad outlines are here and it’s a pretty sure thing that the SEC had the details. Given that, the SEC probably forced Dell either to settle or face the charges in public. If that was the choice, $100 million probably seemed cheap.