Fiat Chrysler to pay $40M fine for over­stat­ing its sales

The Morning Call - - BUSINESS CYCLE - By Tom Krisher

“This case un­der­scores the need for com­pa­nies to truth­fully dis­close their key per­for­mance in­di­ca­tors.”

DETROIT — Fiat Chrysler is pay­ing $40 mil­lion to set­tle with U.S. se­cu­ri­ties reg­u­la­tors who say the au­tomaker mis­led in­vestors by over­stat­ing its monthly sales num­bers over a five-year pe­riod.

The Ital­ian-Amer­i­can com­pany in­flated sales by pay­ing deal­ers to re­port fake num­bers from 2012 to 2016, the U.S. Se­cu­ri­ties and Ex­change Com­mis­sion al­leged in a com­plaint.

Fiat Chrysler agreed to pay the civil penalty and to stop vi­o­lat­ing anti-fraud, re­port­ing and in­ter­nal ac­count­ing con­trol reg­u­la­tions, the SEC said Fri­day in a state­ment. The au­tomaker did not ad­mit or deny the agency’s al­le­ga­tions, the state­ment said.

“This case un­der­scores the need for com­pa­nies to truth­fully dis­close their key per­for­mance in­di­ca­tors,” An­to­nia Chion, as­so­ciate direc­tor in the SEC’s En­force­ment Di­vi­sion, said in the state­ment. She noted that the new ve­hi­cle sales fig­ures give in­vestors in­sight into the de­mand for an au­tomaker’s prod­ucts, a key to as­sess­ing the com­pany’s per­for­mance.

Fiat Chrysler said it has re­viewed and re­fined its sales re­port­ing pro­ce­dures. It said the pay­ment will not have a large im­pact on its fi­nan­cial state­ments.

The agency said the au­tomaker boasted about a streak

— An­to­nia Chion, as­so­ciate direc­tor in the SEC’s En­force­ment Di­vi­sion

of year-over-year sales in­creases into 2016, when the streak was bro­ken in Septem­ber of 2013.

When the com­pany dis­closed the sales scheme in 2016, it said that it had a “re­serve” stock of cars that had been shipped to big fleet buy­ers such as rental car com­pa­nies but not recorded as sales.

The SEC said em­ploy­ees called this data­base of ac­tual but un­re­ported sales the “cookie jar.” The com­pany dipped into those sales to stop the streak from end­ing, or when it would have missed other sales tar­gets.

Fiat Chrysler said it now records sales as soon as ve­hi­cles are shipped to cus­tomers. It has also take steps to en­sure that a sale is im­me­di­ately sub­tracted from its books when it finds out the deal was scut­tled be­cause the buyer backed out or couldn’t get fi­nanc­ing.

The SEC probe is an­other in a long string of le­gal trou­bles for Fiat Chrysler. It also faces fed­eral in­ves­ti­ga­tions into il­le­gal pay­ments to union of­fi­cials through a train­ing cen­ter, and a crim­i­nal probe into al­le­ga­tions that its diesel-pow­ered trucks were pro­grammed to cheat on emis­sions tests. The com­pany has de­nied cheat­ing, but fed­eral pros­e­cu­tors charged an en­gi­neer ear­lier this week and said he con­spired with oth­ers.

In June, Fiat Chrysler’s U.S. sales chief sued the com­pany al­leg­ing that it with­held 90% of his pay pack­age be­cause he tes­ti­fied in the SEC’s in­quiry into its sales re­port­ing.

Reid Bigland al­leged that Fiat Chrysler vi­o­lated Michi­gan’s Whistle­blower Pro­tec­tion Act, re­tal­i­at­ing against him be­cause of his tes­ti­mony.

Bigland, who is still with the com­pany, al­leged in his law­suit said that he in­her­ited the sales re­port­ing sys­tem when he took over the top sales job in 2011. When a dealer sued the com­pany over the re­port­ing sys­tem in 2016, Fiat Chrysler re­ported prob­lems to the SEC, ac­cord­ing to the doc­u­ments.

The com­pany, in its mo­tion to trans­fer the case to fed­eral courts, tried to cast doubt on Bigland’s whistle­blower claims. It said Bigland ac­knowl­edges that Fiat Chrysler re­ported the prob­lems it­self and that he didn’t tes­tify vol­un­tar­ily be­fore the com­mis­sion.

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