Dell caught up in alleged pump-and-dump kickback scandal

A suit filed by two Dell shareholders says that rebates were kept secret by Dell so that Intel would not face further antitrust law suits. It also says that Dell used the payments to falsely inflate its financial results while Dell executives sold $3.3 billion of stock.

Calling the two companies' alleged actions "the largest insider trading pump and dump in history", the suit, filed by law firm Lerach, Coughlin, Stoia, Geller, Rudman & Robbins, requests class action.

Intel is already being sued in the US in an antitrust case, and an EU investigation is ongoing into the company's practices.

The allegations follow Dell's announcement that following several poor runs of quarterly results in a row founder Michael Dell will take over from chief executive Kevin Rollins in running the company. Rollins will leave Dell.

The lawsuit claims that Dell failed to make adequate disclosure about what effect the alleged millions of dollars worth of rebates had on company results. It says that the rebates were a reward for Dell's exclusive use of Intel chips.

It says that Dell used the revenue from the rebates to make it look as though Dell was performing better than it was. When share prices recovered on the back of improved performance, the suit says, executives took the opportunity to sell shares at the higher price.

"Dell's insiders took advantage of this artificial inflation in Dell’s stock price, selling off an enormous amount of their Dell stock – nearly 99 million shares – for illegal insider trading proceeds of $3.3 billion," says the suit.

"Many insiders sold off over 90% of their Dell shares. Dell’s CEO sold off 98.6% of his shares. Dell’s CFO sold off 99% of his shares. Dell’s CAO sold off 96% of his shares. The two executives in charge of Dell’s U.S. consumer business sold off 97% and 100% of their shares."

"The Dell Defendants furthered the fraudulent scheme by causing Dell to spend over $12 billion in corporate funds to repurchase over 350 million shares of Dell common stock on the open market – manipulating that stock price higher," says the suit.

Dell has not commented on the lawsuit, but an Intel spokesman, speaking to the Financial Times, said that some aspects of the suit were "completely made up".

"We deny the plaintiff's allegations and we plan to move quickly to defend ourselves," said Intel's Chuck Mulloy.

Intel faces an antitrust lawsuit from Advanced Micro Devices (AMD), its main competitor. AMD is conducting its suit in the US, in a Delaware court, but based on allegations about Intel's conduct outside, as well as inside, the US.

Late last year the Delaware court said it would not rule on allegations of conduct outside its jurisdiction. It threw out the section of the suit relating to actions outside of the US, which observers believe to have been around half of the suit.