Dell, several former executives, and its founder, Michael S. Dell, agreed Thursday to pay more than $100 million in penalties to settle charges of disclosure accounting fraud filed by the Securities and Exchange Commission.
The S.E.C. had accused Dell of misleading investors by using money the company received from the chip maker Intel to pad its quarterly earnings statements. Company executives, according to the S.E.C., relied on the payments from Intel to meet or surpass Wall Street’s expectations.
Intel paid Dell in the form of rebates as part of an agreement to ensure that Dell would not use computer chips made by Advanced Micro Devices in its personal computers and computer servers, according to the civil charges. Those rebates are the subject of federal and state antitrust inquiries of Intel.
When Dell eventually picked A.M.D. as a second supplier, Intel cut the rebates, and Dell’s financial performance suffered, the complaint said. The S.E.C. said in its charges that investors were not aware of the extent of the payments and how they were being used.
“Dell manipulated its accounting over an extended period to project financial results that the company wished it had achieved but could not,” said Christopher Conte, associate director of the S.E.C.’s enforcement division, in a statement announcing the settlement. “Dell was only able to meet Wall Street targets consistently during this period by breaking the rules.”
Without the Intel payments, Dell would have missed the consensus estimate for earnings per share published by Wall Street analysts who followed the company in every quarter during its fiscal years from 2002 through 2006. The exclusivity payments constituted a steadily growing part of what Dell reported as its operating earnings, from 10 percent in fiscal 2003 to 38 percent in the fiscal 2006, then jumping to 76 percent in the first quarter of fiscal 2007, the S.E.C. said.
To settle the S.E.C. charges, which were filed Thursday in Federal District Court here, Dell agreed to pay a $100 million penalty. As is common in S.E.C. settlements, the company did not admit or deny the accusations, and agreed to an order permanently enjoining it from future similar violations.
Dell, based in Round Rock, Tex., announced last month that it had set aside the amount of the penalty for a potential settlement. In 2007, it also had restated its earnings results from 2003, through the first quarter of 2007, to admit manipulating earnings.
Mr. Dell, the company’s chairman and chief executive, and Kevin Rollins, the former chief executive, each agreed to pay a $4 million penalty. They did not admit or deny the charges but agreed to an order prohibiting them from violating federal securities laws.
Dell’s former chief financial officer, James M. Schneider, agreed to pay a $3 million fine under similar settlement terms, and paid an additional $83,096 in disgorgement and $38,640 in prejudgment interest. Two other Dell officials — Nicholas A. R. Dunning, a former regional vice president for finance, and Leslie L. Jackson, a former assistant controller — each agreed to pay $50,000 in penalties.
The S.E.C. credited the Federal Trade Commission with assistance on the Dell case, a sign that the two agencies shared considerable information about the practices by Intel that are the subject of a pending antitrust lawsuit by the F.T.C. Though that lawsuit is scheduled for trial in September, Intel and the F.T.C. are discussing a settlement, and this week extended the deadline to reach an agreement to Aug. 6.
The F.T.C. investigation is one of at least five government antitrust investigations of Intel, including in Europe, Asia and New York State. Intel also was the subject of a private antitrust suit by A.M.D., the Intel competitor that was involved in the case settled on Thursday.
In a statement, the presiding director of Dell’s board, Sam Nunn, the former senator from Georgia, said the board “reaffirms its unanimous support for Mr. Dell’s continued leadership.” Mr. Nunn said the settlement “is in the best interest of the company, its customers and its shareholders, as it brings a five-year S.E.C. investigation to closure.”
From 2003 through 2007, the payments to Dell from Intel totaled $4.3 billion, the S.E.C. said. Though the payments were said by the two companies to be based on complex pricing assessments, the S.E.C. said detailed schedules drawn up by the companies were “a meaningless exercise” to make the payments appear to be something other than what they were.
Although the payments were intended to keep Dell from using computer chips made by A.M.D., according to the S.E.C. charges, in 2003, Dell was in talks with Microsoft, A.M.D. and I.B.M. on a deal that would have had Dell take an ownership interest in A.M.D. During the talks, though, Intel offered to substantially increase its payments to Dell, and Mr. Dell ordered the negotiations with A.M.D. and the other companies to end, the S.E.C. said.
Dell frequently sought additional rebates from Intel near the end of the quarter to meet earnings targets, according to the S.E.C. complaint, which also said, “Dell was quite open with Intel about the reasons it was requesting additional money.”
When Dell announced in May 2006 that it would use A.M.D. products in its computers, Intel immediately cut its payments by a quarter of a billion dollars, an amount that accounted for three-quarters of the decline in Dell operating profits that period, the S.E.C. said.