SEC Fines GM $1M For Lack Of Warning Systems To Head Off Ignition Recall – Forbes
General Motors may have been hammered by the Department of Justice and civil litigants for billions of dollars for ignoring warning signs that a defective ignition switch was causing deaths in its vehicles and keeping the information from safety regulators, but the Securities and Exchange Commission only slapped the automaker on the wrists for keeping the information from investors.
Specifically, the SEC said GM’s warranty group should have been told about the ignition switch issue earlier so they could determine what financial set-asides were necessary, and whether the estimated costs of the problem were big enough to be called out from the normal reserves for GM warranty claims.
“Internal accounting controls at General Motors failed to consider relevant accounting guidance when it came to considering disclosure of potential vehicle recalls,” Andrew Calamari, director of the SEC’s New York regional office, said in a statement.
The ignition switch defect is linked to 124 deaths. Among GM’s penalties has been a $900 million fine by the DOJ. There has also been a $600 million fund set up for victims and their families. Private settlements push the cost closer to $2 billion.
GM’s culpability on the ignition recall was determined when investigators learned that GM only initiated a recall 18 months after GM lawyers knew of the defect based on accident data and early settlements with litigants.
The defect, which would have cost 57 cents per car to prevent, was identified when drivers who loaded up their key-chains with lots of keys and fobs, caused the ignition switches to clip out of position. That, in turn, caused the vehicle to lose power while still moving, often at high speed.
The SEC found that GM did not make any misstatements on its financial disclosure forms, but rather fined the company for having sloppy systems that did not work to inform investors/shareholders of the financial hit the company would take.