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Thursday, August 5, 2010

SEC Settles Accounting Fraud Charges Against Navistar and Current and Former Officers

The SEC issued a cease-and-desist order against Navistar International Corporation (Navistar), CEO Daniel C. Ustian (Ustian), former CFO Robert C. Lannert (Lannert), Thomas M. Akers, Jr. (Akers), James W. McIntosh (McIntosh), James J. Stanaway (Stanaway), Ernest A. Stinsa (Stinsa) and Michael J. Schultz (Schultz). Each Respondent consented to the issuance of the Order without admitting or denying the Commission's findings as part of a global settlement.

The Order finds that at times from 2001 through 2005, Navistar overstated its pre-tax income by a total of approximately $137 million as the result of various instances of misconduct. Fraud by certain individuals at a Wisconsin foundry and in connection with certain vendor rebates and vendor tooling transactions accounted for approximately $58 million of that total. The remaining approximately $79 million resulted from improper accounting for certain warranty reserves and deferred expenses.

The Order directs Navistar to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder and Ustian, Navistar's CEO, and Lannert, Navistar's former CFO, to cease and desist from causing any violations and any future violations of Section 13(b)(2)(B) of the Exchange Act.

Ustian and Lannert also agreed to comply with the forfeiture provisions of Section 304(a) of the Sarbanes-Oxley Act of 2002. Ustian consented to tender to the Company shares of Navistar common stock currently owned by Ustian in the amount of $1,320,000 and Lannert consented to pay $1,049,503 to the Company. Those dollar amounts reflect monetary bonuses that each received during the restatement period.

Additionally, the Order directs McIntosh to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder and from causing any violations and any future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act; Akers, Schultz and Stanaway to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder and from causing any violations and any future violations of Section 13(b)(2)(A) of the Exchange Act; and Stinsa to cease and desist from committing or causing any violations and any future violations of Exchange Act Rule 13b2-1 and from causing any violations and any future violations of Section 13(b)(2)(A) of the Exchange Act.

The Commission filed a parallel civil action in the United States District Court for the Northern District of Illinois against Akers, McIntosh, Stanaway, Stinsa and Schultz, in which each consented to pay civil penalties as follows: Akers — $100,000; McIntosh — $150,000; Stanaway — $50,000; and Stinsa — $25,000. A civil penalty was not imposed against Schultz because of a demonstrated inability to pay. These individuals consented to the filing of this complaint without admitting or denying its allegations.

Additionally, on August 5, 2010, the Commission issued a separate settled order concerning Navistar's former Controller, Mark T. Schwetschenau. The Order directs Schwetschenau to cease and desist from causing any violations and any future violations of Sections 13(a) and 13(b)(2)(B) of the Exchange Act. The Order also denies him the privilege of appearing or practicing before the Commission with the right to request reinstatement after one year pursuant to Section 102(e)(1)(ii) of the Commission's Rules of Practice.

The Commission filed a parallel civil action in the United States District Court for the Northern District of Illinois against Schwetschenau in which he consented to pay $37,500 in civil penalties. Schwetschenau neither admitted nor denied the Commission's findings and allegations.

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