US federal authorities investigating General Motors’ process in the current ignition switch recall are looking, in part, into whether the automaker committed bankruptcy fraud by not disclosing defects that could lead to expensive future liabilities, a person briefed on the inquiry told a US newspaper.
The question is whether GM knew about the defect — a faulty ignition switch — when it filed for bankruptcy in 2009, and failed to fully disclose the problem, while realising that it could lead to a cascade of liability claims, the New York Times (NYT) said.
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While it has been known that the Justice Department was investigating GM, the interest in the bankruptcy filing is the first indication of what direction the inquiry may take, the paper noted.
The report noted GM has told federal regulators that it was alerted as early as 2001 to problems with the switches, which if bumped or weighed down by a heavy key ring, could shut down the engine and disable the air bags. Twice, it told regulators last month, it explored fixes to the switch but failed to do so in 2004 and 2005. GM has linked the faulty switches, which were in 1.6m Chevrolet Cobalts and other small cars – including a small number of Opel branded models sold in Europe – that were recalled last month, to 31 crashes and 12 deaths.
The NYT said the investigation, which also is considering whether GM played down the defect problem to safety regulators, is being run by the same group of FBI agents and federal prosecutors in Manhattan that built the fraud case against Toyota that led to a US$1.2bn settlement announced last week.
In that case, the Justice Department’s four-year investigation found that the company hid information about defects in its cars from consumers and government officials. The faulty parts caused sudden, unintended acceleration in several of its models and put lives at risk, according to the paper.
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By GlobalDataWhile bankruptcy fraud is different from the fraud case the Justice Department built against Toyota, it hinges on the same issue: whether company officials failed to tell the government and the public something that it knew to be true, the Times said.
GM has cooperated in the investigation and has provided documents to federal investigators in New York, the New York Times’ source said.
