Dell CEO fined millions for bad business and non-disclosure

From Microsoft to Dell and S & L scams to IRS criminals, it seems that no-one is out of the scrutiny of the SEC. An agency built by the US government to monitor financial scams and violations, the SEC has recouped billions of dollars in the past 10 years from unethical business leaders in technology and banking using strong arm tactics.

Dell Computer executive CEO Michael Dell has been caught with his hands in the cookie jar and now is predicted to pay at least 100 million dollars. Michael Dell took a two-fisted punch from the Securities and Exchange Commission Thursday: One popped him with charges for failure to disclose material information to investors and the other tagged him with a $4 million settlement fine (the good news for Dell is that the SEC's actions didn't result in a prison sentence). His company, Dell (DELL) got hit even harder, agreeing to pay $100 million to settle both failure to disclose charges, as well as charges of accounting fraud in a case involving its relationship with chip giant Intel.

Dell and the company he founded appeared to be prepared to make the deal, announcing last month that the company had set aside $100 million for a potential SEC settlement and that Dell, as far as the company could tell, would not be barred from serving as an officer and director at the company.

If the SEC's allegations are true, then investors may be feeling duped that they bought Dell's highly-touted direct sales model hook, line and sinker. According to the SEC's charges, the model wasn't the efficiency engine that everyone thought. For many years, Dell and his lieutenants -- namely former CEO Kevin Rollins, former CFO James Schneider, former regional Finance Vice President Nicholas Dunning and former Assistant Controller Leslie Jackson -- basked in admiration from investors who praised their savvy management style while other industry behemoths stumbled. But, according to the SEC's allegations, all of that chest-thumping may not have been justified. Here's what the SEC claims:

Dell Inc., Michael Dell, Rollins, and Schneider misrepresented the basis for the company's ability to consistently meet or exceed consensus analyst EPS estimates from fiscal year 2002 through fiscal year 2006. Without the Intel (INTC) payments, Dell would have missed the EPS consensus in every quarter during this period. The SEC's complaint further alleges that Dell's most senior former accounting personnel including Schneider, Dunning, and Jackson engaged in improper accounting by maintaining a series of "cookie jar" reserves that it used to cover shortfalls in operating results from FY 2002 to FY 2005. Dell's fraudulent accounting made it appear that it was consistently meeting Wall Street earnings targets and reducing its operating expenses through the company's management and operations.

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