The SEC filed a complaint against Dell Inc. in 2010 for failing to disclose large rebate payments received from Intel. The payments were in exchange for Dell exclusively purchasing CPUs from Intel rather than AMD. Dell treated the rebates as reductions to costs of goods sold instead of operating expenses to overstate profits. The nondisclosure misled investors about the true basis of Dell's profitability and financial condition. Dell paid $100 million in penalties and executives paid millions in personal penalties to settle the SEC charges.
The SEC filed a complaint against Dell Inc. in 2010 for failing to disclose large rebate payments received from Intel. The payments were in exchange for Dell exclusively purchasing CPUs from Intel rather than AMD. Dell treated the rebates as reductions to costs of goods sold instead of operating expenses to overstate profits. The nondisclosure misled investors about the true basis of Dell's profitability and financial condition. Dell paid $100 million in penalties and executives paid millions in personal penalties to settle the SEC charges.
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The SEC filed a complaint against Dell Inc. in 2010 for failing to disclose large rebate payments received from Intel. The payments were in exchange for Dell exclusively purchasing CPUs from Intel rather than AMD. Dell treated the rebates as reductions to costs of goods sold instead of operating expenses to overstate profits. The nondisclosure misled investors about the true basis of Dell's profitability and financial condition. Dell paid $100 million in penalties and executives paid millions in personal penalties to settle the SEC charges.
Copyright:
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Download as PPTX, PDF, TXT or read online from Scribd
c Personal computers c Software and peripherals c Servers and networking c Storage devices.
c Other Services include:
c Configurable information technologies for businesses c Infrastructure technologies c Consulting applications c Business process services Securities & Exchange Commission
c Hold responsibility for enforcing federal securities laws and
regulating the securities industry and stock market in the US
c Regulate the stock market and prevents corporate abuses relating
to the offering and sale of securities and corporate reporting
c Congress allows the SEC to bring civil enforcement actions
against individuals or companies who have: c Committed accounting fraud c Provided false info c Engaged in insider trading vhe SEC Complaint
c Filed on July 22, 2010 under Accounting and Auditing
Enforcement Release No. 3156
c Charged Dell with D
Dell·s Non-Disclosure of Financial Information
c Dell failed to disclose the receipt of large payments from
Intel Corporation in the form of rebates c Payments were in exchange for agreeing to exclusively purchase central processing units from Intel and not from Advanced Micro Devices Incorporated (AMD) c vhe fact that the payments were not disclosed on Dell·s financial statements fraudulently misrepresented the basis for Dell·s improving profitability vhe Nondisclosure Quickly Got Out of Hand«
c Shareholders had no idea that the rebate program existed at
the level that it did
c Intel began increasing the amount of rebates that they were
awarding Dell to hundreds of millions of dollars each year to persuade Dell from taking their business elsewhere
c By 2004 Dell was relying solely on the payments to meet
their quarterly EPS goals Why Such a Problem?
c Since payments were not disclosed in the financial
statements investors and shareholders were gauging the company·s growing profitability on the wrong factors. c Over a 5 year period payments from Intel allowed Dell to drive profits and meet Wall Street EPS targets.
c vhis led investors to believe that it was Dell·s own
management and operations that allowed earning targets to be met, when in fact it was the Intel payments Misstated Income Statement
c On Dell·s income statement they treated the
rebates as decreases in costs of good sold c vhe rebates should actually have been recorded as a reduction in operating expenses. c By decreasing COGS Dell was able to show a higher gross margin, which looks more appealing to investors than lower operating expenses. Other Misstatements
c On the Management Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) section of Dell's 10Ks, many materially misleading statements were published
c MD&A·sprovide investors an opportunity to look at the
company through the eyes of management
c According to the SEC complaint, Dell's materially
misleading MD&A disclosures defeated the entire purpose of the MD&A since they did not fully disclose Dell's results of operations and the basis for its success Dell·s Repercussions
c varnished public image
c Paid a $100 million penalty to settle the charges
c CEO Michael Dell and former CEO Kevin Rollins
each had to pay a $4 million penalty c Former CFO James Schneider paid $3 million dollar penalty In Relation to Strategic Management«
c As a manager it is important to make ethically
sound decisions c vhe ethical decision often times may not be the most profitable c Prime example of how easily management can be swayed to please investors