Wednesday, March 29, 2006

Now It's a Criminal Investigation of GM

As noted in an earlier post (here), GM had to delay the filing of its annual 10-K due to accounting problems that cropped up at its ResCap residential mortgage division.  The company filed the report on March 28, and it includes the disclosure that an investigation of its accounting for certain supplier credits and rebates involves a federal grand jury, which issued a subpoena to GM.  The 10-K (here) describes the many and varied government investigations of the company:

The SEC has issued subpoenas to us in connection with various matters that it is investigating. These matters for which we have received subpoenas include our financial reporting concerning pension and OPEB [Other Postretirement Employee Benefits], certain transactions between us and Delphi, supplier price reductions or credits, and any obligation we may have to fund pension and OPEB costs in connection with Delphi’s Chapter 11 proceedings. In addition, the SEC recently issued a subpoena in connection with an investigation of our transactions in precious metal raw materials used in our automotive manufacturing operations, and a federal grand jury recently issued a subpoena in connection with supplier credits. Separately, SEC and federal grand jury subpoenas have been served on GMAC entities in connection with industry-wide investigations into practices in the insurance industry relating to loss mitigation insurance products such as finite risk insurance. We are cooperating with the government in connection with all these investigations. A negative outcome of one or more of these investigations could require us to restate prior financial results (in addition to our recent restatements) and could result in fines, penalties, or other remedies being imposed on GM, which under certain circumstances could have a material adverse effect on our business.

By my count, that's at least four accounting investigations -- pensions, raw material trading/income reporting, supplier rebates/credits, and finite risk insurance -- and two of them involve criminal inquiries.  In the jargon of disclosure documents, "a material adverse effect on our business" means GM could get whacked hard, at a time that it is struggling with declining market share and significant labor cost issues.  An interesting question will be whether any of the investigations will result in charges against individuals, and if so, how high up the corporate ladder the investigation could stretch. (ph)

Fraud, Grand Jury, Investigations, Securities | Permalink

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