Intel Lawsuit Accuses Execs of Wasting Shareholders’ Money

Key Takeaways

• Intel shareholders have filed a derivative action against the company and its senior leadership.
• Executives including former CEO Pat Gelsinger are accused of financial mismanagement.
• During Gelsinger’s tenure, Intel’s share price declined by as much as 60%.

Intel Corporation is facing a shareholder derivative lawsuit alleging that its leadership mismanaged company funds and damaged the firm’s financial health.

The complaint, filed by The LR Trust on behalf of Intel and its shareholders, targets current and former executives and directors, accusing them of breaches of fiduciary duty, unjust enrichment and corporate waste.

Allegations of Financial Mismanagement

The lawsuit criticizes Intel’s “Internal Foundry” model introduced as part of its IDM 2.0 strategy, an ambitious plan to turn the company into a major contract manufacturer spearheaded by former CEO Pat Gelsinger. Amid mounting criticism of his leadership, Gelsinger recently departed the company.

Noting that Intel Foundry Services (IFS) reported an operating loss of $7 billion in 2023, the filing states that “IFS experienced substantial operating losses” and “a decline in product profit driven by lower internal revenue.”

Plaintiff alleges that Intel’s executives, including Gelsinger and CFO David Zinsner, “breached their fiduciary duties of loyalty and good faith by allowing or permitting false and misleading statements to be disseminated” and “otherwise failing to ensure that adequate internal controls were in place regarding the material issues and deficiencies” described in the lawsuit.

Corporate Governance Failures

Alongside allegations of financial mismanagement, the lawsuit also accuses Intel’s board of failing to provide adequate oversight.

Specifically, it alleges that the board’s inaction allowed executives to proceed with wasteful spending, including over $10 billion in cost-reduction plans that involved workforce layoffs and dividend suspensions.

“The Board’s inaction eroded shareholder value and violated its oversight responsibilities,” the filing stated. This failure to act, “resulted in severe financial harm and reputational damage to Intel,” it added.

Demands for Accountability

The plaintiff seeks remedies including corporate governance reforms and restitution for financial damages.

“In the absence of this action, Intel will neither recover its damages nor properly remediate the weaknesses in its internal controls and corporate governance practices and procedures,” the complaint argues.

From the accused executives, shareholders have demanded the disgorgement of all profits, benefits and other compensation gained through the alleged misconduct.