Dell shares fall; accounting probe reveals misconduct

Dell shares fall; accounting probe reveals misconduct
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First Published: Fri, Mar 30 2007. 07 00 PM IST
Updated: Fri, Mar 30 2007. 07 00 PM IST
By Connie Guglielmo/Bloomberg
San Francisco: Dell Inc. shares fell after the world’s second-largest personal computer maker said on 30 March it found evidence of misconduct and accounting errors as part of an investigation into its financial results.
The stock fell 2.3% to the equivalent of $22.86 (Rs1,000) from a close of $23.39 on 29 March on the Nasdaq Stock Market. Round Rock, Texas-based Dell said it would miss a deadline for filing its annual report as officials work to determine if they need to restate results.
The findings may step up pressure on chief executive officer Michael Dell because investors said they are frustrated as the company hasn’t resolved the issue yet. The US Securities and Exchange Commission started its review in August 2005 and the probe escalated into a formal investigation in November.
“Everybody wants to get to the facts,” said Mike Green, a fund manager at Benham & Green Capital Management in La Jolla, California, which owns Dell shares. “I want to find out what’s going on with the accounting. I want to see it in black and white.”
Dell said there may be issues related to accruals and reserves, estimates of expenses or losses that have occurred but haven’t yet been paid. The company is being investigated by the Justice Department.
The shares fell as much as 8.1% to $21.50 in extended trading on 29 March, having already lost 6.8% this year.
Dell, which lost the PC market lead last year to Hewlett- Packard Co., has only reported preliminary results for the past two quarters. The company said it will miss the 3 April deadline for its annual report as well as the extended date of 18 April.
The audit committee found a “number of accounting errors, evidence of misconduct, and deficiencies in the financial control environment,” Dell said. The committee is being led by Thomas Luce II, a former Dell director and lawyer who returned to the board in September.
The committee is still working with management and independent auditors to determine whether the errors require financial restatements for prior periods.
“The question becomes: What’s the magnitude? That still is not clear,” said Michael Shinnick, a portfolio manager at First Source Bank in South Bend, Indiana. The company manages about $3 billion including Dell shares. Investors may “want to stand aside until there’s more clarity.”
Dell also told executives and directors on 29 March that they won’t be able to buy or sell the company’s shares until the company files its annual report for the year ended 2 February.
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First Published: Fri, Mar 30 2007. 07 00 PM IST
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