Fiat Chrysler pays $40 million to settle false sales reporting charges
Fiat Chrysler Automobiles NV will pay $40 million to settle charges that it misled investors and falsely reported the number of new vehicles sold each month.
The Securities and Exchange Commission said it found antifraud violations from false reports of a 75-month "streak" of uninterrupted monthly year-over-year sales growth between 2012 and 2016. The streak actually was broken in September 2013, according to the SEC's order. Fiat Chrysler did not admit guilt or deny the findings, according to the commission on Friday.
The payment will not have a material impact on the FCA's financial statements, company spokesman Jeff Bennett said in a statement.
"FCA US cooperated fully in the process to resolve this matter," he said. "The Company has reviewed and refined its policies and procedures and is committed to maintaining strong controls regarding its sales reporting."
Federal investigators in July 2016 began probing the automaker’s U.S. sales reporting processes. The investigation also led the automaker's chief of U.S. sales to file a whistleblower lawsuit against Fiat Chrysler.
New-vehicle sales and the growth streak are key performance indicators that demonstrate the company’s competitive position and demand for its vehicles.
Fiat Chrysler inflated new-vehicle sales by paying dealers to report false vehicles sales and maintained a database of actual sales that had gone unreported during months when the automaker had experienced growth, according to the order.
Employees often referred to the database as a "cookie jar," investigators wrote. In months when the growth streak would have ended or when FCA fell short of other targets, the company dipped into the “cookie jar” and reported old sales as if they had just occurred, according to the commission. In May 2016, the company reported 12,000 earlier vehicle sales from the fleet database, according to the order.
From August 2012 to July 2016, press releases filed by the company reported the sales growth streak, according to the order, but sales in months between September 2013 and May 2016 actually had declined.
“New vehicle sales figures provide investors insight into the demand for an automaker’s products, a key factor in assessing the company’s performance,” Antonia Chion, SEC's associate director in the division of enforcement, said in a statement. “This case underscores the need for companies to truthfully disclose their key performance indicators.”
The SEC’s order found that FCA violated the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, as well as the reporting, books and records, and internal accounting controls provisions of the Exchange Act.
The federal investigations began after two Illinois Fiat Chrysler dealerships filed a civil racketeering lawsuit against the automaker, alleging the company offered dealers money to report unsold vehicles as sold. The federal lawsuit alleged in 2016 that the automaker's North American-based operation "knowingly endorses and encourages the false reporting of motor vehicle sales by directly rewarding its district managers and business center directors with monetary and quarterly bonuses which are directly related to reported vehicle sales numbers."
The civil racketeering suit alleged that a dealership principal was asked to falsely report sales of 40 vehicles in exchange for $20,000 in incentives by Fiat Chrysler to the dealer. The automaker at the time said the lawsuit was “without merit.” A judge dismissed the fraud and racketeering claims.
Fiat Chrysler has since changed the way it reports its sales figures. Not long after the federal probe began in 2016, the automaker revised what had been touted as a 75-month-long string of year-over-year sales increases. The automaker saw sales increase for roughly half that time, based on the new reporting practices. The automaker settled the civil lawsuit in April 2019, according to a report from the Wall Street Journal.
Reid Bigland, head of U.S. sales and the Ram brand for Fiat Chrysler, filed a federal whistleblower lawsuit against the automaker in June, claiming he had become a scapegoat for the inflated vehicle sales practices, which he said he inherited. He was appointed the head of U.S. sales in June 2011.
He alleged FCA executives retaliated against him for cooperating with the federal investigation by slashing his pay by more than 90%. Bigland claimed the company planned to use the withheld $1.8 million in bonuses and stock payout for fines or settlements reached with the SEC.
The automaker in June said Bigland's compensation is "subject to a determination by the Board of Directors' compensation committee that he has satisfied the applicable company and personal performance conditions."
Separately, FBI agents and the U.S. Attorney's Office are investigating corruption within the U.S. auto industry and have secured nine convictions, including former Fiat Chrysler Vice President Alphons Iacobelli, once the automaker's top labor-relations executive.
The federal criminal investigation is into whether executives conspired to pay bribes and break labor laws during a years-long conspiracy with the United Auto Workers.
The Detroit News reported in June that the automaker was looking to settle. Negotiators at the time were focused on the automaker submitting to government oversight for up to five years, paying less than $50 million in penalties and agreeing to make broad institutional changes to emerge from the bribery scandal, two sources said at the time. One sticking point was whether Fiat Chrysler agreed to admit guilt, according to a source.
Fiat Chrysler earlier in January also agreed to pay $800 million to settle claims that it had equipped some of its diesel-powered pickups and Jeep SUVs with software designed to elude emissions tests. FCA was not required to admit any wrongdoing as part of the settlement.
Emanuele Palma, FCA's senior manager of diesel engine calibration, however, was indicted Tuesday on charges of violating the Clean Air Act, wire fraud, false statements and aiding and abetting FCA's efforts to defraud car buyers.