Dell 2008 Annual Report Download - page 90

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a discussion of Dell's significant legal matters.
• Investigations and Related Litigation — In August 2005, the SEC initiated an inquiry into certain of Dell's accounting and financial reporting
matters and requested that Dell provide certain documents. The SEC expanded that inquiry in June 2006 and entered a formal order of
investigation in October 2006. The SEC's requests for information were joined by a similar request from the United States Attorney for the
Southern District of New York ("SDNY"), who subpoenaed documents related to Dell's financial reporting from and after Fiscal 2002. In August
2006, because of potential issues identified in the course of responding to the SEC's requests for information, Dell's Audit Committee, on the
recommendation of management and in consultation with PricewaterhouseCoopers LLP, Dell's independent registered public accounting firm,
initiated an independent investigation, which was completed in the third quarter of Fiscal 2008. Although the Audit Committee investigation has
been completed, the investigations being conducted by the SEC and the SDNY are ongoing. Dell continues to cooperate with the SEC and the
SDNY.
Dell and several of its current and former directors and officers were named as parties to securities, Employee Retirement Income Security Act of
1974 ("ERISA"), and shareholder derivative lawsuits all arising out of the same events and facts.
Four putative securities class actions filed between September 13, 2006 and January 31, 2007, in the Western District of Texas, Austin Division,
against Dell and certain of its current and former officers were consolidated as In re Dell Securities Litigation, and a lead plaintiff was appointed
by the court. The lead plaintiff asserted claims under sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 based on alleged false
and misleading disclosures or omissions regarding Dell's financial statements, governmental investigations, internal controls, known battery
problems and business model, and based on insiders' sales of Dell securities. This action also included Dell's independent registered public
accounting firm, PricewaterhouseCoopers LLP, as a defendant. On October 6, 2008, the court dismissed all of the plaintiff's claims with prejudice
and without leave to amend. On November 3, 2008, the plaintiff filed a notice of appeal to the Fifth Circuit Court of Appeals with respect to the
dismissal of Dell and the officer defendants.
Four other putative class actions filed between September 25, 2006 and October 5, 2006, in the Western District, Austin Division, by purported
participants in the Dell 401(k) Plan were consolidated as In re Dell ERISA Litigation, and lead plaintiffs were appointed by the court. The lead
plaintiffs asserted claims under ERISA based on allegations that Dell and certain current and former directors and officers imprudently invested
and managed participants' funds and failed to disclose information regarding its stock held in the 401(k) Plan. On June 23, 2008, the court granted
the defendants' motion to dismiss as to the plaintiffs' claims under ERISA based on allegations of imprudence, but the court denied the motion to
dismiss as to the claims under ERISA based on allegations of a failure to accurately disclose information. On October 29, 2008, the court dismissed
all of the individual plaintiffs' claims with prejudice.
In addition, seven shareholder derivative lawsuits filed between September 29, 2006 and January 22, 2007, in three separate jurisdictions were
consolidated as In re Dell Derivative Litigation into three actions. One of those consolidated actions was pending in the Western District of Texas,
Austin Division, but was dismissed without prejudice by an order filed October 9, 2007. The second consolidated shareholder derivative action was
pending in Delaware Chancery Court. On October 16, 2008, the Delaware court granted the parties' stipulation to dismiss all of the plaintiffs'
claims in the Delaware lawsuit without prejudice. The third consolidated shareholder derivative action is pending in state district court in
Williamson County, Texas. These shareholder derivative lawsuits named various current and former officers and directors as defendants and Dell
as a nominal defendant, and asserted various claims derivatively on behalf of Dell under state law, including breaches of fiduciary duties.
The Board of Directors received a shareholder demand letter, dated November 12, 2008, asserting allegations similar to those made in the
securities and derivative lawsuits against various current and former officers and directors and PricewaterhouseCoopers LLP, and requesting that
the Board of Directors investigate and assert claims relating to those allegations on behalf of Dell. The Board of Directors will consider and
address the demand.
• Copyright Levies — Proceedings against the IT industry in Germany seek to impose levies on equipment such as personal computers and
multifunction devices that facilitate making private copies of copyrighted materials. The total levies due, if imposed, would be based on the
number of products sold and the per-product amounts of the levies, which vary. Dell, along with other companies and various industry
associations, are opposing these levies and instead are advocating compensation to rights holders through digital rights management systems.
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