Fiat Chrysler Automobiles (FCA NV) and its Auburn Hills, Michigan-based subsidiary FCA US have agreed to pay $40 million to settle allegations of misleading investors about vehicle sales.
Specifically, the SEC alleges in its administrative proceeding that FCA US from at least August 2012 to July 2016 fraudulently misled investors about the number of new vehicles that it and its dealers sold each month to customers.
According to the agency, FCA US or its predecessors from September 2013 also falsely claimed that it continued to increase new vehicle sales every month on a year-over-year basis by reporting what it called a ‘streak’ of uninterrupted sales growth. FCA US issued monthly press releases falsely reporting its new vehicle sales and growth streak, and it and parent company FCA NV attached those press releases to reports presented to the SEC, the commission says.
New vehicle sales and the growth streak were key performance indicators for FCA US, its parent, investors and analysts, the SEC says, adding that FCA NV explained to investors in annual reports that new vehicle sales showed the company’s competitive position and demand for its vehicles. Vehicle sales in the US – which are mainly made under the Chrysler, Dodge, Jeep and Ram brands – accounted for almost half of FCA NV’s worldwide sales, according to the commission.
FCA US inflated monthly vehicle sales to customers by paying dealers to report fake sales, which were later ‘unwound’ or reversed, the SEC alleges.
In addition, FCA US failed to report all sales in the months in which they were made and kept a database of the unreported sales that employees often referred to as a ‘cookie jar’, according to the agency. In months when it wanted its vehicle sales results to appear better than they were – and to avoid ending the growth streak – FCA US used the cookie jar database to inflate its figures, the SEC says.
FCA US falsely reported year-over-year sales growth in September 2013 and May 2016, when sales in those months declined compared with sales in the same months of the preceding years, according to the commission. FCA US also inflated results before investor events that were held while FCA NV was preparing to list shares on the NYSE, the SEC adds.
Dealers and employees informed FCA US of fake sales reporting at its business centers on multiple occasions between 2013 and 2015, but the company continued to make false sales reports until mid-2016, the agency alleges.
In addition, the SEC says FCA US and FCA NV in their books and records inaccurately recorded FCA US’ payments to dealers so that fake sales appeared as advertising expenses. The respondents also failed to have a sufficient system of internal accounting controls relating to how new vehicle sales and dealer payments were recorded, according to the filing.
‘New vehicle sales figures provide investors [with] insight into the demand for an automaker’s products, a key factor in assessing the company’s performance,’ says Antonia Chion, associate director in the SEC’s enforcement division, in a statement. ‘This case underscores the need for companies to truthfully disclose their key performance indicators.’
FCA US and FCA NV settled without admitting or denying wrongdoing. The company says in a statement: ‘FCA US co-operated fully in the process to resolve this matter. The company has reviewed and refined its policies and procedures and is committed to maintaining strong controls regarding its sales reporting. The settlement requires a payment of $40 million, which will not have a material impact on the financial statements of the company.’
Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
