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Compaq settles fraud case

Compaq Computer settles with 22 state attorneys general over allegations that its used computers were sold as new.

Compaq Computer (CPQ) today settled with 22 state attorneys general over allegations that its used computers were sold as new.

Compaq, without admitting guilt, agreed to pay $132,000 to cover investigation costs and restrict access of packaging materials to its independent dealers, said John Wall, assistant attorney general for Arizona.

The company has previously contended that it's an industry practice to provide dealers with new computer boxes and sealing tape to repackage equipment when boxes have been damaged during shipping.

"By providing those materials, Compaq opened the door for used computers to be repackaged by dealers and sold as brand new," said Tom Corbett, attorney general for Pennsylvania.

Under the agreement, Compaq will give dealers Styrofoam packing material and unmarked boxes when returning equipment to the company.

Wall said the Compaq case is part of an ongoing investigation and declined to disclose other companies that may be under investigation.

"I think most other manufacturers will take a look at this settlement and make changes in the way they do things," said William Coston, an attorney for Compaq. "In the past year and a half, I've had calls from other manufacturers' general counsel about our case, so they've been interested in this outcome."

State agencies involved in the case also include Arkansas, California, Connecticut, Delaware, Florida, Illinois, Indiana, Kentucky, Louisiana, Massachusetts, Michigan, Missouri, New Jersey, New Mexico, New York, Ohio, Oregon, Texas, West Virginia and Vermont.

The case came to light a couple of years ago when Compaq filed a lawsuit against Packard Bell in 1995 over allegations it placed used parts in computers it sold as new. Compaq, in their suit, said they allow resellers to use new Compaq boxes when they are damaged in transit to dealers.

The two computer makers settled their lawsuit in February, but state attorneys general launched investigations into the practices of both companies. Packard Bell, which placed used parts in computers it sold as new, settled with 22 state attorney general offices for $8.5 million and agreed to place notices on their boxes that some of the computers may contain parts that were used.