New York State Attorney General Andrew Cuomo has sued Dell over consumer complaints against the computer maker, contending that the company engaged in deceptive financing practices.
The suit, filed in New York state court in Albany, accuses Dell and its financial services unit of misleading customers with enticing financing offers that carry many restrictions and limitations. Cuomo's office wants an injunction against Dell's practices, and unspecified damages to affected customers.
Investors shrugged off the lawsuit, with Dell shares rising .
The announcement of the lawsuit came as "something of a relief following widespread rumors" on Tuesday that the impending statement from Cuomo's office could have represented a widening of existing regulatory probes into the company's accounting, Goldman Sachs stock analyst Laura Conigliaro wrote in a research note to clients.
In the lawsuit, the New York attorney general said that consumers "who purchase Dell's products often find that many of the benefits and inducements featured in Dell's advertisements are illusory."
Dell spokesman Bob Pearson said Dell would vigorously defend itself and was confident that its practices will be found to be fair and appropriate.
The lawsuit was filed on Tuesday, Cuomo's office said. The complaint says that while Dell offers promotions such as a "no-interest" period of financing to computer buyers, the company uses "ultra-restrictive underwriting guidelines" that prohibit the vast majority of consumers, even those with excellent credit records, from qualifying.
Dell then offers many of those who are denied the promotional financing the regular plan under which consumers receive an open line of credit at interest rates that often exceed 20%, the lawsuit said.
"Our customers are our top priority at Dell," Pearson said. "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."
Conigliaro said Dell had been taking steps to improve its customer service.
"The suggestion that Dell set out to intentionally deceive consumers, as the lawsuit contends, does not ring true with the reality that Dell has been in the process of adding resources to its services capability," she said in her research note.
The lawsuit comes as investors are beginning to think Dell's problems with securities regulators are winding down, Conigliaro said.
The company said in August 2006 that the U.S. Securities and Exchange Commission and federal prosecutors were investigating its past accounting. In March, Dell said an internal financial audit found evidence of misconduct, accounting errors and deficiencies in its financial controls.