N.Y. attorney general accuses Dell of fraud

Suit accuses the company of fraud, false advertising and deceptive business practices.
Written by Erica Ogg, Contributor
Dell is being accused of making false promises to customers to drive sales, according to a lawsuit filed Tuesday by New York Attorney General Andrew Cuomo.

The court filing accuses Dell and Dell Financial Services of 10 counts of fraud, false advertising and deceptive business practices, including offering misleading financing, and failing to honor rebates and warranties.

The state of New York is asking for an injunction of Dell's allegedly bad business practices and an order that the world's second-largest PC maker pay an unspecified amount of damages to customers found to be affected, in addition to a $500 civil penalty payable to the state of New York for each violation.

"Dell's consumers were intentionally misled, and they had to pay for that privilege. I hope this lawsuit sends a message to companies large and small that delivering a product is simply not enough--the promises they make must be delivered as well," Cuomo said in a statement Wednesday. His office set up a Web site Wednesday for consumers wishing to be part of the suit.

The suit (PDF: Cuomo v. Dell), filed in Albany County, N.Y., accuses Dell of "bait and switch" tactics in which customers are encouraged to apply for zero-interest financing, only to be misled and offered credit lines with up to 20 percent interest rates when they do not qualify for the financing promotion.

In addition, the suit alleges that Dell Financial Services bills customers for canceled orders, as well as for returned or missing merchandise. As a result, DFS and other collection agencies harass consumers for "months on end" for payments they do not owe, according to the petition.

The PC maker's advertising campaign, which touts its award-winning tech support department, is also targeted in the suit. Promises made on television are not met, according to the suit. Customers who purchased warranties are instead met with "a nightmarish array of obstacles in their quest for service."

Dell spokesman Bob Pearson told CNET News.com that the company will contest the suit. "We are confident that our practices will be found to be fair and appropriate. While even one dissatisfied customer is too many, the allegations in the AG's filing are based upon a small fraction of Dell's consumer transactions in New York. We are committed to providing a positive experience to all of our customers every day," he said in an e-mailed statement.

Pearson said the suit is not related to the Securities and Exchange Commission's investigation into Dell's accounting practices. Dell's own internal investigation into the matter yielded what its audit committee called "evidence of misconduct." As a result of the SEC's investigation, Dell has filed only preliminary quarterly financial reports for the past three quarters.

In December, analyst firm Friedman Billings Ramsey criticized the way Dell accounted for warranties, saying the company used an "unusual" method for accounting for the money it takes in from warranty sales and the money it reserves to handle expected warranty claims.

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