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Shareholders file expanded Dell lawsuit, attack Intel rebates

Complaint alleges that Dell failed to make required disclosures to the SEC and investors about the rebates.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
2 min read
Shareholders have filed an expanded securities-related lawsuit against Dell, adding Intel as a defendant over the chipmaker's controversial marketing rebate program.

The expanded complaint, filed earlier this week in U.S. District Court in Austin, Texas, alleges that the computer giant failed to make required disclosures to the Securities and Exchange Commission and investors about the "existence, impact and uncertainty of Intel rebates." The lawsuit also names additional Dell executives and Dell's auditor, PricewaterhouseCoopers, to the complaint.

Intel's rebate program has been the subject of antitrust action in Japan and is under investigation in Europe, as well as in Korea with the Korean Fair Trade Commission.

"Intel secretly paid very large end-of-quarter cash rebates to PC (manufacturers), like Dell, that purchased all or virtually all of their microprocessor/chip requirements from Intel," the amended lawsuit states. "These rebates, which were, in fact, kickbacks, were not traditional volume-based discounts and the monies paid were separate and apart from and in addition to certain publicly known, co-marketing funds which Intel made available to certain of its customers to assist in product advertising."

The lawsuit further alleges that Intel insisted Dell not disclose the existence of the rebate payments in the computer maker's SEC filings or to Wall Street for fear it would come under scrutiny with antitrust regulators.

Dell allegedly received roughly $1 billion a year from the rebates, which accounted for approximately 10 percent of its gross profits, the lawsuit claims.

Dell declined to comment on Friday, citing the pending litigation.

Intel, meanwhile, issued a strong statement defending its rebate program.

"We conducted a preliminary review of the complaint. At first glance, it appears that some of the allegations with respect to Intel appear to have been completely made up," Chuck Mulloy, an Intel spokesman said Friday.

Intel further notes that while the shareholders group cites antitrust allegations, the chip giant is not facing any antitrust claims.

"We deny the plaintiffs' allegations and plan to move quickly to defend ourselves," Mulloy noted.

The shareholders' lawsuit, meanwhile, alleges that investors were denied a complete picture of Dell's finances without information on the scope and size of Intel's rebate program.

The plaintiffs are seeking compensatory damages, and restrictions on the transfer of insider sales proceeds to individual defendants, among other things. The original lawsuit was filed in September 2006.