GM Engulfed By Inquiries as Stakes Over Recall Rise
04/25/2014 6:11 PM
04/25/2014 6:28 PM
WASHINGTON The waters aren’t getting any calmer for General Motors and its new chief executive, Mary Barra.
The Detroit automaker’s long-delayed recall of 2.6 million Chevy Cobalts, Saturn Ions and four other models now is the subject of investigations by the U.S. attorney’s office in New York, the Securities and Exchange Commission, the National Highway Traffic Safety Administration, two congressional subcommittees and a yet-to-be-identified state attorney general’s office.
The SEC inquiry and the Justice Department investigation, described by The Detroit News as leading to federal grand jury subpeonas, were divulged as part of the company’s upbeat quarterly earnings report filed with the SEC on Thursday.
The fallout over the ignition switch defects, which have been blamed for at least 13 deaths and more than 30 crashes, has seemed to grow by the day despite the company’s pledges of full cooperation with all of the investigative bodies, in keeping with Barra’s declaration that the new GM will do things “the right way.”
Essentially, the investigations and a deluge of lawsuits share this common theme: that GM allegedly hid defects in the vehicles from consumers, regulators and even shareholders for years, through the company’s near financial collapse, its bailout by federal taxpayers and its turnaround under a corporate board dominated by U.S. Treasury Department designees, even as the carnage from vehicle crashes mounted. Barra says she didn’t learn of the problems until Jan. 31st, shortly before a series of recalls began.
In its SEC filing, General Motors said it’s been named the defendant in 60 class-action suits alleging economic harm to consumers from the defects, including five suits brought in Canada. The company said it will “vigorously defend” itself against all of the suits.
One suit, filed on April 11 in Georgia, alleges that the company intentionally and fraudulently concealed facts surrounding the switch from regulators for years, leading to a 2009 Cobalt crash that caused brain injuries to 17-year-old Haley Van Pelt.
In addition, several state and federal court suits allege that GM’s directors breached their fiduciary duty to shareholders by failing to monitor the underlying issues leading to the recall, failing to timely disclose the problem to stockholders and for wasting corporate assets.
One key issue will be how General Motors, guided by disaster-fund guru Kenneth Feinberg, will choose to deal with victims, given that some of the fatalities and injuries occurred before the firm’s 2009 federal bankruptcy filing, a move that usually shields companies from paying damages for events before it sought court protection from its creditors. However, in announcing the retention of Feinberg, Barra said he would guide the firm in how to compensate victims, and GM hasn’t ruled out any action.
Another big issue will be how far the Justice Department might go in seeking criminal sanctions, just weeks after inking an unprecedented, $1.2 billion criminal settlement with Japanese giant Toyota over similar concealment of defects that caused gas pedals in Lexuses and other models to stick to the floor at full throttle.
Several media outlets have reported that senior company executives have begun hiring attorneys.
Barra told a congressional panel in early April that Anton Valukas, a former U.S. attorney for Chicago whom she hired to conduct an internal investigation, should be finished within a few weeks. Shortly after Valukas began his inquiry, two company engineers were placed on paid leave, including Ray DeGeorgio, who signed a 2006 order for a redesign of the ignition switch without changing the part number.
An engineer assisting the family of a Georgia fatality victim of a 2010 Cobalt crash last year discovered that the part had changed. DeGeorgio, however, denied knowing about any changes in sworn testimony in the family’s lawsuit.
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