GM to pay $1M fine to SEC in ignition switch resolution
General Motors Co. said Wednesday it will pay a $1 million civil penalty as part of a settlement with the U.S. Securities and Exchange Commission related to the regulator’s investigation into the automaker’s ignition switch recall.
The Detroit automaker said it is consenting to an administrative cease and desist order with the SEC and is doing so without admitting or denying wrongdoing. The company said the settlement with the SEC “does not call into question any of GM’s current or prior financial statements or its disclosures. Also, no material weakness or significant deficiency was found by the SEC.”
The SEC found that GM violated part of the Securities Exchange Act that requires stock issuers to have sufficient internal accounting controls. The regulator said deficit accounting controls kept the company from properly and timely determining if the defective ignition switches would potentially impact GM’s financial statements.
“Internal accounting controls at General Motors failed to consider relevant accounting guidance when it came to considering disclosure of potential vehicle recalls,” Andrew M. Calamari, director of the SEC’s New York Regional Office, said in a statement. “Proper consideration of loss contingencies and assessment of the need for disclosure are vital to the preparation of financial statements that conform with Generally Accepted Accounting Principles.”
The SEC said that accounting guidance requires companies to assess when a likely recall could occur and to estimate a loss, or provide a statement that it can’t make an estimate. The SEC found GM’s internal investigation into the ignition switch determined warranty group accountants did not learn of the faulty switches on older cars until November 2013, even though other GM personnel knew of the safety issue in spring 2012. And thus, accountants for at least 18 months “did not properly evaluate the likelihood of a recall occurring or the potential losses resulting from a recall of cars with the defective ignition switch,” the SEC said.
GM in early 2014 recalled nearly 2.6 million older cars for faulty ignition switches that could slip out of the “run” position, preventing the air bags from deploying in crashes. The company knew of the defect for years but did not recall the cars for more than a decade.
The faulty ignition switches ultimately were tied to 124 deaths and hundreds of injuries.
The ignition switch crisis has cost GM more than $2 billion to date. The automaker paid $900 million to the Justice Department in a settlement reached in September 2015 following an investigation over the delayed recall. In spring 2014, GM admitted it broke the law and paid a $35 million civil penalty to the National Highway Traffic Safety Administration. It also has settled several lawsuits and spent nearly $600 million to compensate victims and their families.
It also entered into an up to three-year consent agreement with NHTSA and has made significant safety changes inside the company, including reorganizing vehicle engineering for more transparency and accountability and creating a new global vehicle safety organization. GM also changed its processes for investigating and deciding to recall vehicles and as part of that, the SEC says information must be provided to GM’s warranty group accountants earlier.
GM also has a federal monitor as part of its deferred prosecution settlement with the Justice Department.
The company likely faces more fines and settlements related to the ignition switch defect. It still faces investigations by 50 state attorneys general and Transport Canada and faces numerous lawsuits.
GM’s stock closed Wednesday at $37.47, up 16 cents.