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DALLAS � The going is a bit rough right now for Dell Inc. The U.S. Securities and Exchange Commission and the U.S. attorney’s office for the Southern District of Texas are nosing around Dell’s financial reporting, and nationally known and feared plaintiffs firm Lerach Coughlin Stoia Geller Rudman & Robbins recently filed a shareholder securities suit against Dell and two officers in the wake of a delayed quarterly earnings report. So what has Dell done, besides presumably hire outside counsel for the securities suit, to help battle its difficulties? It persuaded former longtime director Thomas Luce III to come back to its board of directors. Luce, who is retired from Dallas’ Hughes & Luce, was a member of Dell’s board from 1991 through 2005, and served on the board’s audit committee for much of that time. Luce left Dell’s board in September 2005 to take a position as an assistant to U.S. Secretary of Education Margaret Spellings, but he left his job as assistant secretary for the Office of Planning, Evaluation and Policy Development in Washington, D.C., on Sept. 1 to return to Dallas. In a written statement on Sept. 20 to announce Luce would rejoin the board, Dell Chairman Michael Dell said Luce’s historical knowledge of Dell and his past experience on the audit committee are “great assets” for the board to have available. Luce did not return three telephone calls seeking comment before press time on Sept. 27. Bringing Luce back to the board is a good move on Dell’s part, says Houston solo practitioner Christopher Bebel, a former SEC prosecutor who does securities litigation. “Dell needs to establish a central nerve center that will be able to analyze the developments that are occurring on a collection of fronts and assess them in order to get a sense of where things might ultimately belong and how these cases, how things may actually shake out,” Bebel says. “And Tom Luce would undoubtedly be in a position to assess the significance of the developments.” Bebel says Dell’s board may view Luce as “irreplaceable” and someone to call on in a time of crisis. Kathy Patrick, a partner in Gibbs & Bruns in Houston, says Luce has a sterling reputation and great judgment, and because of his past board service at Dell, he may be in a unique position to help the board. “Typically in these cases when companies get in trouble, they will sometimes look outside the board to a gray eminence that has a sterling reputation � a role for what Tom obviously fits the bill � to come in and … to look with fresh eyes at decisions that already have been made,” says Patrick, who does securities litigation. While the situation is not exactly the same, Patrick says Luce’s return to the Dell board is reminiscent of the time in October 2001 when William Powers, then dean of the University of Texas School of Law, joined the board of Houston’s Enron Corp. to head a special investigative committee looking into some questionable transactions overseen by Enron Chief Financial Officer Andrew Fastow. Enron filed for bankruptcy in December 2001, and Fastow was ultimately indicted. On Sept. 26, U.S. District Judge Kenneth Hoyt in Houston sentenced Fastow to six years in prison and two years of supervised release after the former CFO pleaded guilty to two criminal charges stemming from the federal investigation into Enron’s collapse. Lerach Coughlin is known for moving fast when corporations report unsettling financial news. The shareholder securities suit against Dell filed on Sept. 13 in U.S. District Court for the Western District of Texas raises questions about financial reporting at the major computer manufacturer that is in 25th place on the most recent Fortune 500 listing. The plaintiffs in Marc Abrams v. Dell Inc., allege the defendants made materially false and misleading statements in violation of � � 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, which artificially inflated the price of Dell stock and damaged the plaintiffs. In their complaint, the plaintiffs seek class action status for all individuals who bought Dell stock from Feb. 13, 2003, to Sept. 8, 2006. The defendants are Dell Inc.; Kevin Rollins, the chief executive officer and president; and James Schneider, senior vice president and chief financial officer. Jess Blackburn, a spokesman for Dell, says the company declined to comment on the litigation, as does Lawrence Tu, senior vice president, general counsel and secretary. Because the suit was filed so recently, defense attorneys are not listed in court records, and Blackburn did not identify the defense attorneys Dell hired for the suit. Joe Kendall and Willie Briscoe, lawyers with Provost & Umphrey in Dallas, filed the complaint on behalf of the plaintiffs, but neither returned a telephone call before press time. Mary Blasy, an associate with Lerach Coughlin in San Diego, declined to comment. The plaintiffs allege in the complaint that Dell’s competitive advantages began to dissipate in 2003, but the defendants throughout the class period concealed the “true status of Dell’s declining business model” and caused the company to report inflated financial results by misstating the company’s accrual and reserves on its balance sheet. The plaintiffs allege that even though the SEC had been investigating the company’s revenue recognition practices and other accounting practices since 2005, Dell didn’t tell shareholders until it issued the company’s second-quarter earnings report on Aug. 17, 2006. The company also announced at that time that the board’s audit committee was doing a full review, the plaintiffs allege in the complaint. On Sept. 11, Dell announced it would delay the filing of its Form 10-Q for the second quarter, which ended on Aug. 4. According to a written statement on Sept. 11, Dell said that it could not file the 10-Q because of questions related to the previously announced investigation by the SEC and that the U.S. attorney’s office for the Southern District of New York had served the company with a subpoena asking for documents related to accounting and financial reporting from 2002 to the present. Lauren McDonough, a spokeswoman for the U.S. attorney’s office for the Southern District of New York, says she cannot confirm or deny any investigation. John Heine, an SEC spokesman, declines comment. In Abrams, the plaintiffs allege the defendants made false statements or failed to disclose adverse facts known to them about Dell. They also allege in the complaint that the defendants’ “fraudulent scheme” deceived shareholders of Dell common stock, artificially inflated the price of its stock, permitted Rollins and Schneider to obtain millions in cash bonuses, and caused the plaintiffs to buy Dell stock at inflated prices. Brenda Sapino Jeffreys is a reporter with the Texas Lawyer, a Recorder affiliate based in Dallas.

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