Law expert: Feds may push GM guilty plea
General Motors Co. could be forced to plead guilty as part of a settlement with the Justice Department, which is nearing a decision on whether to seek criminal charges against the automaker in its delayed recall of 2.6 million cars for ignition switch defects linked to at least 104 deaths, a legal expert said Sunday.
The investigation by the Justice Department is being done at a time when it has been taking a harder line against companies.
In previous years, the Justice Department allowed companies like Toyota Motor Corp., Daimler AG and major banks to avoid guilty pleas.
But last week, five banks — Citicorp, JPMorgan Chase & Co., the Royal Bank of Scotland, Barclays PLC and UBS AG — agreed to plead guilty to U.S. felony charges and pay $5.4 billion in fines after they were charged with conspiracy to manipulate currency rates. They will be on probation for three years and must cooperate with other criminal investigations.
Wayne State University law professor Peter Henning said the government could force the automaker to plead guilty for its recall that was delayed for 10 years after some in the company were aware there was a problem.
The Detroit News reported late Friday that GM officials hope to settle with the U.S. Attorney's Office in Manhattan's investigation by the end of the summer. It is not clear if the government will require GM to plead guilty or allow the automaker agree to enter into a "deferred prosecution" agreement in which GM wouldn't have to plead guilty to a felony, but would be required to undergo a period of oversight by an outside monitor approved by the Justice Department.
The immediate impact of a guilty plea would be that the automaker would need waivers from the Labor Department to handle employee pension and retirement savings plans. It would need exemptions from the Securities and Exchange Commission for some debt offerings. A guilty plea also could potentially impact government contracts.
It's not clear what crime the Justice Department could be considering charging GM with. Henning said it could be for false statements or for violating reporting requirements under a 2000 auto safety law called the TREAD Act.
GM officials say privately they expect the automaker to be charged criminally and pay a fine likely to exceed the $1.2 billion Toyota paid in March 2014. Wall Street analysts have suggested for months that GM could face a multi-billion penalty to resolve the 14-month-old investigation.
"We're cooperating with the investigation," GM spokesman Pat Morrissey said Friday. "We have no indication of timing."
Feds revisiting approach
Since the collapse of Arthur Andersen in 2002, which led to the loss of tens of thousands of jobs, federal prosecutors have been cautious about subjecting companies to criminal charges, John Savarese, a lawyer at Wachtell, Lipton, Rosen & Katz, wrote in a February blog post on a Harvard Law School website.
"In 2014, however, the government signaled that it is revisiting its approach," he wrote. "Prosecutors now seem to view concerns about collateral consequences with a higher degree of skepticism."
Prior cases suggest GM wouldn't be hurt where it counts — in showrooms — if it is charged with a crime. Banks and companies charged in big cases haven't seen a consumer backlash.
"A week later (after the settlement is announced), no one is going to walk into a showroom and go, 'Wait a minute, you're the ones with the recall problem. I'm going to the Ford dealer,' " Wayne State's Henning said. "Memories fade. People have short attention spans."
GM has said its sales were not hurt by last year's ignition switch scandal and unprecedented 84 recall campaigns covering more than 30 million vehicles.
$35M fine already paid
Federal prosecutors — aided by the FBI and a federal grand jury — have interviewed dozens of current and former GM executives, lawyers and engineers. They also have talked to employees at auto supplier Delphi Corp., which made the ignition switch.
GM already admitted to wrongdoing when it paid a record $35 million fine to the National Highway Traffic Safety Administration in May 2014 and agreed to up three years of enhanced oversight. Last week, NHTSA said it would extend its required monthly meetings and GM reporting rules for at least another year.
It's not clear if the Justice Department will charge anyone at the automaker with individual criminal wrongdoing — including any of the 15 fired and five disciplined by GM CEO Mary Barra.
But Henning said GM was unlikely to fight the charges. A trial could be a public relations nightmare with graphic testimony from families of those killed or people injured. "Now you reopen the wounds," Henning said. The government case would be simple: "You guys are a bunch of liars and you killed people."
In September, then-Attorney General Eric Holder sent a warning to major corporations, saying the Justice Department would seek out individual wrongdoers and not just blame the company. The government has been criticized for reaching deals with large banks and other companies in which they agree to pay massive fines, but few if any executives are charged criminally.
The $1.2 billion criminal fine imposed on Toyota was for corporate misconduct after that company was charged with wire fraud, a felony. Toyota agreed to three years of monitoring by a former U.S. Attorney in New York, David Kelley, but didn't have to plead guilty.
No Toyota executives were charged, even though the government's investigation found "individual employees not only made misleading public statements to Toyota's consumers, but also concealed from Toyota's regulator a safety-related issue."
Federal prosecutors are investigating the recall of 34 million vehicles with potentially defective Takata Corp. air bags that are linked to at least six deaths and more than 100 injuries. The Takata investigation was shifted from the federal prosecutors in Manhattan — who are also leading the GM investigation — to the U.S. Attorney's Office in Detroit earlier this year.