Takata in Talks to Resolve Allegations of Criminal Wrongdoing Over Faulty Air Bags
September 28 2016 - 5:20AM
Dow Jones News
Takata Corp. is negotiating to resolve allegations of criminal
wrongdoing after federal prosecutors found evidence of unlawful
conduct in the Japanese automotive supplier's handling of
rupture-prone air bags linked to numerous deaths and injuries, said
people familiar with the matter.
U.S. Justice Department investigators have held preliminary
discussions with Takata that picked up steam in August, the people
said. Prosecutors are currently awaiting a proposal from the
company on how to resolve an anticipated criminal case, the people
said. The discussions are continuing without a firm timetable for
reaching a settlement, they said.
Prosecutors are weighing charging Takata with criminal wire
fraud after determining the company likely made misleading
statements and concealed information about air bags that can
explode and spray shrapnel in vehicle cabins, the people said. The
safety crisis is linked to 14 deaths and more than 100 injuries
globally. Prosecutors haven't discussed a specific charge with
Takata and could pursue other kinds of criminal violations in the
case, the people said.
Auto makers are recalling nearly 70 million Takata air bags in
the U.S. alone, the largest ever such automotive safety campaign.
The Japanese supplier has acknowledged providing misleading testing
reports on air bags to customers including Honda Motor Co., while
adding the discrepancies weren't tied to safety devices that later
exploded. The misleading reports are a significant focus of the
criminal investigation, some of the people said.
Takata also last November admitted it failed to alert regulators
to defective air bags in a timely manner as required under federal
law, and agreed to a $70 million fine from the National Highway
Traffic Safety Administration.
Prosecutors from the U.S. attorney's office in Detroit and the
Justice Department's fraud section in Washington are also
considering pursuing criminal charges against Takata employees, the
people familiar with the matter said, though details on those
possible cases remained unclear.
Deputy U.S. Attorney General Sally Yates last year urged
prosecutors to pursue individuals in corporate investigations amid
criticism the Justice Department penalized companies without
pursuing employees involved in alleged misconduct. A Volkswagen AG
engineer earlier this year pleaded guilty to federal charges
stemming from diesel-emissions cheating the German auto giant
admitted to in 2015.
Takata is expected to face a financial penalty as part of any
settlement, though the size isn't yet determined and prosecutors
are mindful the company faces significant financial pressures from
an onslaught of recalls, the people said. Regulators spread the
November fine against Takata over five years.
A spokeswoman for the U.S. attorney's office in Detroit declined
to comment. A Takata spokesman said the company is cooperating with
the Justice Department's investigation and declined further
comment.
Takata collectively lost more than $400 million over the past
two fiscal years ending in March before posting a profit in the
quarter ending in June, according to company financial reports. A
Jefferies Group LLC analyst earlier this year estimated additional
recalls under way could add more than $6 billion to Takata's
already sizable liabilities.
Takata is currently reviewing bids from private-equity firms and
automotive suppliers for a possible cash infusion to address
mounting recall costs, according to people familiar with the
process. Chief Executive Shigehisa Takada earlier this year
disclosed plans to resign once Takata is on surer financial
footing. He has previously pledged to regain trust with regulators,
auto makers and consumers.
Safety transgressions also led to criminal cases against Toyota
Motor Corp. for lapses stemming from unintended acceleration in
vehicles and General Motors Co. for mishandling a defective
ignition switch.
Both auto makers faced wire-fraud charges in those cases. GM
faced an additional charge of scheming to conceal a potentially
deadly safety defect from regulators. The companies agreed to pay
financial penalties, expressed regret for their transgressions and
pledged reforms.
Toyota and GM each entered deferred prosecution agreements under
which the government will eventually seek to dismiss charges so
long as the manufacturers adhere to settlement terms. It isn't yet
clear whether prosecutors will offer Takata a similar deal or seek
a more onerous guilty plea, some of the people said.
Takata admitted to failing to alert regulators within five days
of uncovering safety defects as legally required, according to the
November civil settlement with regulators. Information related to
the defects was relevant to safety recalls in 2013, 2014 and 2015,
settlement papers said.
Safety regulators found Takata in "several instances" produced
testing reports that contained "selective, incomplete or inaccurate
data," according to the settlement. The company also failed to
"clarify inaccurate information" provided to regulators during a
January 2012 presentation, settlement papers said.
Regulators last week released an internal Takata report
detailing the company's yearslong history of lapses with air bags.
The report found in one instance that the company failed to alert
regulators to the 2003 rupture of an air bag in Switzerland.
In a February 2010 response to queries from regulators about
certain air-bag recalls, Takata failed to mention the May 2003
Switzerland rupture, according to the report. The response instead
claimed there were no reported malfunctions of relevant air-bag
inflaters, adding the company was convinced the devices sold to
auto makers weren't defective.
A U.S. engineer at Takata questioned the omission but later
determined the company's response was accurate because the inflater
involved in the Switzerland rupture wasn't among those manufactured
during the time frame Takata's response to regulators addressed,
the report said.
Write to Mike Spector at mike.spector@wsj.com and Aruna
Viswanatha at Aruna.Viswanatha@wsj.com
(END) Dow Jones Newswires
September 28, 2016 06:05 ET (10:05 GMT)
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