Manhattan U.S. Attorney Announces Criminal Charges Against General Motors And Deferred Prosecution Agreement With $900 Million Forfeiture
Loretta E. Lynch, the Attorney General of the United States, Anthony Foxx, the United States Secretary of Transportation, Preet Bharara, the United States Attorney for the Southern District of New York, Mark R. Rosekind, Administrator of the National Highway Traffic Safety Administration (“NHTSA”), Calvin L. Scovel, III, Inspector General of the United States Department of Transportation (“DOT-OIG”), Christy Goldsmith Romero, Special Inspector General of the Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”), and Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the filing of criminal charges against General Motors Company (“GM” or the “Company”), an automotive company headquartered in Detroit, Michigan, that has designed, manufactured, assembled, and sold Chevrolet, Pontiac, and Saturn brand vehicles, among others. GM is charged with concealing a potentially deadly safety defect from its U.S. regulator, the National Highway Traffic Safety Administration (“NHTSA”), from the spring of 2012 through February 2014, and, in the process, misleading consumers concerning the safety of certain of GM’s cars.
The defect consisted of an ignition switch that had been designed and manufactured with too-low torque resistance and could therefore move easily out of the “Run” position into “Accessory” or “Off” (the “Defective Switch”). When the switch moved out of Run, it could disable the affected car’s frontal airbags – increasing the risk of death and serious injury in certain types of crashes in which airbags were otherwise designed to deploy. The models equipped with the Defective Switch were the 2005, 2006, and 2007 Chevrolet Cobalt; the 2005, 2006, and 2007 Pontiac G5; the 2003, 2004, 2005, 2006, and 2007 Saturn Ion; the 2006 and 2007 Chevrolet HHR; the 2007 Saturn Sky; and the 2006 and 2007 Pontiac Solstice. To date, GM has acknowledged a total of 15 deaths, as well as a number of serious injuries, caused by the Defective Switch.
Mr. Bharara also announced a deferred prosecution agreement with GM (the “Agreement”) under which the Company admits that it failed to disclose a safety defect to NHTSA and misled U.S. consumers about that same defect. The admissions are contained in a detailed Statement of Facts attached to the Agreement. The Agreement imposes on GM an independent monitor to review and assess policies, practices, and procedures relating to GM’s safety-related public statements, sharing of engineering data, and recall processes. The Agreement also requires GM to transfer $900 million to the United States by no later than September 24, 2015, and agree to the forfeiture of those funds pursuant to a parallel civil action also filed today in the Southern District of New York.
The criminal charges are contained in an Information (the “Information”) alleging one count of engaging in a scheme to conceal material facts from NHTSA and one count of wire fraud. If GM abides by all of the terms of the Agreement, the Government will defer prosecution on the Information for three years and then seek to dismiss the charges.
Attorney General Loretta E. Lynch said: “Every consumer has the right to expect that car manufacturers are taking their safety seriously. The Department of Justice is committed to ensuring that the products Americans buy are safe; that consumers are protected from harm; and that auto companies follow the law.”
Transportation Secretary Anthony Foxx said: “General Motors not only failed to disclose this deadly defect, but as the Department of Justice investigation shows, it actively concealed the truth from NHTSA and the public. Today’s announcement sends a message to manufacturers: Deception and delay are unacceptable, and the price for engaging in such behavior is high.”
Manhattan U.S. Attorney Preet Bharara said: “For nearly two years, GM failed to disclose a deadly safety defect to the public and its regulator. By doing so, GM put its customers and the driving public at serious risk. Justice requires the filing of criminal charges, detailed admissions, a significant financial penalty, and the appointment of a federal monitor. These measures are designed to make sure that this never happens again.”
NHTSA Administrator Mark R. Rosekind said: “Today’s action strengthens NHTSA’s efforts to protect the driving public. It sends a message not only to GM, but to the entire auto industry, that when it comes to safety, telling the full truth is the only option.”
DOT Inspector General Calvin L. Scovel, III, said: “To the families and friends of those who died and to those who were injured as a result of crashes related to GM’s defective ignition switches, I offer my deepest sympathies for your loss and my highest admiration for the strength you demonstrate every day. As is true for Secretary Foxx and the Department of Transportation, safety is and will remain the highest priority of my office, and we will continue to work relentlessly to ensure accountability throughout the Department and transportation sector. The OIG is committed to working with our law enforcement and prosecutorial partners in pursuing those who commit criminal violations. The efforts of this dedicated multi-agency team and the agreement reached with General Motors, and that with Toyota in March 2014, must continue to serve as a clarion call to all auto manufacturers and their suppliers of the need to be vigilant and forthcoming to keep the public safe.”
SIGTARP Special Inspector General Christy Goldsmith Romero said: “General Motors’ criminal conduct found by SIGTARP and our law enforcement partners defies comprehension. Our investigation uncovered that GM learned about a life-threatening ignition switch defect that would cause air bags not to inflate, but concealed the deadly safety defect from its regulator, and from people buying used cars from GM dealers. The worst part about this tragedy is that it was entirely avoidable. GM could have significantly reduced the risk of this deadly defect by improving the key design for less than one dollar per vehicle but GM chose not to because of the cost. Americans stepped up and bailed out General Motors with $50 billion; and General Motors must step up and make substantial corporate changes to prevent anything like this from happening again. SIGTARP commends U.S. Attorney Bharara for bringing these charges and standing united in the fight against TARP-related crime.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “GM concealed a safety defect from consumers and regulators, which put drivers at risk. The resolution of this case shows that safety should never take a backseat to expediency.”
According to the allegations in the Information, as well as other documents filed today in Manhattan federal court, including the Statement of Facts:
From the spring of 2012 through February 2014, GM deceived consumers and failed to make a required disclosure to NHTSA, its U.S. regulator, by regarding the connection that certain of its personnel had identified between the Defective Switch and airbag non-deployment. GM also falsely represented to consumers that vehicles equipped with the Defective Switch posed no safety concern.
Early Knowledge of the Defective Switch
GM engineers knew before the Defective Switch even went into production in 2002 that it was prone to easy movement out of the Run position. Testing of a prototype showed that the torque return between the Run and Accessory positions fell below GM’s own internal specifications. But the engineer in charge of the Defective Switch approved its production anyway.
In 2004 and 2005, as GM employees, media representatives, and GM customers began to experience sudden stalls and engine shutoffs caused by the Defective Switch, GM considered fixing the problem. However, having decided that the switch did not pose a safety concern, and citing cost and other factors, engineers responsible for decision-making on the issue opted to leave the Defective Switch as it was and simply promulgate an advisory to dealerships with tips on how to minimize the risk of unexpected movement out of the Run position. GM even rejected a simple improvement to the head of the key that would have significantly reduced unexpected shutoffs at a price of less than a dollar a car.
At the same time, in June 2005, GM made public statements that, while acknowledging the existence of the Defective Switch, gave assurance that the defect did not pose a safety concern.
GM’s Knowledge that the Defective Switch Causes Airbag Non-Deployment
By the spring of 2012, GM knew that the Defective Switch presented a safety defect because it could cause airbag non-deployment in certain GM cars. Specifically, GM personnel investigating the cause of a series of airbag non-deployment incidents learned that the Defective Switch could cause frontal airbag non-deployment in at least some model years of the Cobalt, and were aware of several fatal incidents and serious injuries that occurred as a result of accidents in which the Defective Switch may have caused or contributed to airbag non-deployment. This knowledge extended well above the ranks of investigating engineers to certain supervisors and attorneys at the Company.
GM’s Failure to Disclose the Defect and Recall Affected Cars
Yet not until approximately 20 months later, in February 2014, did GM first notify NHTSA and the public of the connection it had identified between the Defective Switch and airbag non-deployment incidents. The Company thus egregiously disregarded NHTSA’s five-day regulatory reporting requirement for safety defects.
Moreover, for much of the period during which GM failed to disclose this safety defect, it not only failed to correct its June 2005 assurance that the Defective Switch posed no safety concern but also actively touted the reliability and safety of cars equipped with the Defective Switch, with a view to promoting sales of used GM cars. Although GM sold no new cars equipped with the Defective Switch during this period, GM dealers were still, from in or about the spring of 2012 through in or about the spring of 2013, selling pre-owned Chevrolet, Pontiac, and Saturn brand cars that would later become subject to the February 2014 recalls. These sales were accompanied by certifications from GM, assuring the unwitting consumers that the vehicles’ components, including their ignition systems and keys, met all safety standards.
GM’s delay in disclosing the defect at issue was the product of actions by certain personnel responsible for shepherding safety defects through GM’s internal recall process, who delayed the recall until GM could fully package, present, explain, and handle the deadly problem. Rather than move swiftly and efficiently toward recall of at least the population of cars known to be affected by the safety defect and thus certainly destined for recall, GM personnel took affirmative steps to keep the Company’s internal investigation into airbag non-deployment caused by the Defective Switch “offline” – outside of GM’s regular recall process.
Moreover, on at least two occasions while the Defective Switch condition was well known by some within GM but not disclosed to the public or NHTSA, GM personnel made incomplete and therefore misleading presentations to NHTSA assuring the regulator that GM would and did act promptly, effectively, and in accordance with its formal recall policy to respond to safety problems – including airbag-related safety defects.
GM’s Acceptance of Responsibility and Cooperation in the Government Investigation
In February 2014, GM finally conducted a recall of approximately 700,000 vehicles affected by the Defective switch. By March 2014, the recall population had grown to more than 2 million vehicles.
Since February 2014 and the inception of this federal criminal investigation, GM has taken exemplary actions to demonstrate acceptance and acknowledgement of responsibility for its conduct. GM, among other things, conducted a swift and robust internal investigation, furnished the Government with a continuous flow of unvarnished facts gathered during the course of that internal investigation, voluntarily provided, without prompting, certain documents and information otherwise protected by the attorney-client privilege, provided timely and meaningful cooperation more generally in the federal criminal investigation, terminated wrongdoers, and established a full and independent victim compensation program that has to date paid out hundreds of millions of dollars in awards.
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Mr. Bharara praised the outstanding investigative work of SIGTARP, DOT-OIG, NHTSA, and the FBI.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force and Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney Bonnie Jonas, Deputy Chief of the Criminal Division, and Assistant U.S. Attorneys Sarah Eddy McCallum and Edward A. Imperatore are in charge of the prosecution, and Assistant U.S. Attorney Jason H. Cowley, Chief of the Money Laundering and Asset Forfeiture Unit, is responsible for the forfeiture aspects of the case.
GM REACHES AGREEMENT WITH U.S ATTORNEY’S OFFICE
DETROIT – General Motors Co. (NYSE: GM) confirmed today that the company has reached a settlement in the form of a Deferred Prosecution Agreement with the U.S. Attorney’s Office for the Southern District of New York regarding the company’s handling of the ignition switch defect in certain older model vehicles.
“The mistakes that led to the ignition switch recall should never have happened. We have apologized and we do so again today,” said GM CEO Mary Barra. “We have faced our issues with a clear determination to do the right thing both for the short term and the long term. I believe that our response has been unprecedented in terms of candor, cooperation, transparency and compassion.”
GM Chairman Theodore M. Solso said, “GM’s Board of Directors took swift action to investigate the ignition switch issue and we have fully supported management’s efforts to regain the trust and confidence of customers and regulators, and to resolve the Justice Department’s investigation. GM’s Board and leadership recognize that safety is a foundational commitment, and the changes the company has made in the last 15 months have made it much stronger.”
Under the Agreement, the U.S. Attorney’s Office agrees to defer prosecution of charges against GM related to the ignition switch defect and recall for three years. If GM satisfies the terms of the Agreement, federal prosecutors will then seek dismissal of the charges with prejudice.
The Agreement includes a requirement that GM cooperate with the federal government and establish an independent monitor to review and assess the company’s policies and procedures in certain discrete areas relating to safety issues and recalls. GM will also pay a $900 million financial penalty associated with this Agreement and will record a charge for this amount in the third quarter.
The Agreement states that the government’s decision to defer prosecution was based on the actions GM has taken to “demonstrate acceptance and acknowledgement of responsibility for its conduct,” including:
- Conducting a swift and robust internal investigation
- Furnishing investigators with information and a continuous flow of unvarnished facts
- Providing timely and meaningful cooperation more generally in the government’s investigation
- Terminating wrongdoers
- Establishing a full and independent victim compensation program that is expected to pay out more than $600 million in awards
“Reaching an agreement with the Justice Department does not mean we are putting the issue behind us,” Barra said. “Our mission has been to take the difficult lessons from this experience and use them to improve our company. We’ve come a long way and we will continue to build on our progress.”
The Recall and GM’s Response
Following the ignition switch recalls in February and March 2014, GM pledged its full cooperation to authorities investigating the matter. GM’s Board also retained former U.S. Attorney Anton Valukas to conduct an independent investigation.
In June 2014, the Valukas Report was provided to the National Highway Traffic Safety Administration, the U.S. Department of Justice, and members of both the U.S. House of Representatives and Senate. The results of the investigation were later made public.
Barra also discussed the Valukas Report with GM employees in a global town hall meeting, during which she said, “We aren’t simply going to fix this and move on. We are going to fix the failures in our system… and we are going to do the right thing for the affected parties.”
After the recall, GM began making far-reaching changes to its vehicle quality and safety organizations:
- Decisions about vehicle safety and recalls are now elevated to some of the highest levels of the company. GM created a new position, vice president, Global Vehicle Safety, with global responsibility for the development of GM vehicle safety systems, confirmation and validation of safety performance, as well as post-sale safety activities, including recalls.
- Approximately 200 employees joined the Global Safety organization in 2014, including more than 30 new safety investigators in North America whose roles are to help identify and quickly resolve potential safety issues.
- A data analytics team was created to search for emerging issues using internal and external sources, including those reported to NHTSA.
- The company created a “Speak up for Safety” program, designed to give employees and dealers an easy and consistent way to report potential vehicle or workplace safety issues, or suggest safety-related improvements.
- GM’s Global Vehicle Engineering organization was reorganized to improve cross-system integration, deliver more consistent performance across vehicle programs, and address functional safety and compliance in vehicle development.
- GM has implemented new policies and procedures to expedite the repair of recalled vehicles, and to improve its certified pre-owned vehicle program.
The company also established the GM Ignition Compensation Claims Resolution Facility, which is independently administered by attorney Kenneth Feinberg. The facility was designed to settle claims brought by people who suffered physical injuries or lost family members in accidents that may have been related to the ignition switch. It has awarded settlements even to those whose claims involved contributory negligence, as well as claims that would have been barred by bankruptcy court rulings.
General Motors Company Deferred Prosecution Documents
Download GM DPA and Complaint
GM ANNOUNCES RESOLUTION OF CERTAIN CIVIL LITIGATION
DETROIT – General Motors Co. (NYSE: GM) announced today it has settled certain civil actions against the company related to 2014 product recalls, including the ignition switch recall.
The first settlement resolves a shareholder class action filed in the United States District Court for the Eastern District of Michigan. In addition, the company has reached a memorandum of understanding potentially covering approximately 1,380 individual death and personal injury claimants. They include more than half of the personal injury plaintiffs who have lawsuits pending in the Multi-District Litigation (MDL) in the United States District Court for the Southern District of New York.
“The parties to these agreements have resolved difficult claims without the burden, expense and uncertainty of litigation,” said Craig Glidden, GM executive vice president and general counsel.
As a result of these settlements, the company will record a charge of $575 million in the third quarter.
General Motors Co. (NYSE:GM, TSX: GMM) and its partners produce vehicles in 30 countries, and the company has leadership positions in the world’s largest and fastest-growing automotive markets. GM, its subsidiaries and joint venture entities sell vehicles under the Chevrolet, Cadillac, Baojun, Buick, GMC, Holden, Jiefang, Opel, Vauxhall and Wuling brands. More information on the company and its subsidiaries, including OnStar, a global leader in vehicle safety, security and information services, can be found at http://www.gm.com.
In this press release, our use of the words “plans,” “goals,” “expect,” “anticipate,” “possible,” “target,” “believe,” “commit,” “intend” “continue,” “may,” “would,” “could,” “should,” “project,” “appears,” “potential,” “projected,” “on track,” “upside,” “positioned,” “outlook” or similar expressions is intended to identify forward-looking statements that represent our current judgment about possible future events. We believe these judgments are reasonable, but these statements are not guarantees of any events or financial results, and our actual results may differ materially due to a variety of important factors. Among other items, such factors may include: our ability to realize production efficiencies and to achieve reductions in costs as a result of our restructuring initiatives and labor modifications; our ability to maintain quality control over our vehicles and avoid material vehicle recalls and the cost and effect on our reputation of product recalls; our ability to maintain adequate financing sources, including as required to fund our planned significant investment in new technology; the ability of our suppliers to timely deliver parts, components and systems; our ability to realize successful vehicle applications of new technology; overall strength and stability of our markets, particularly outside of North America and China; costs and risks associated with litigation and government investigations including those related to our various recalls; our ability to negotiate a successful new collective bargaining agreement with the UAW and avoid any costly work stoppage; our ability to remain competitive and our ability to continue to attract new customers, particularly for our new products. GM’s most recent reports on Form 10-K and Form 10-Q provide information about these and other factors, which we may revise or supplement in future reports to the Securities and Exchange Commission.