SEC Spotlight Hits Emissions Issues

4/8/2016 Articles

When the Volkswagen emissions scandal hit the press last year, we wondered which agency would manage the subsequent investigations. We are still waiting on the car company’s plan to remedy the emissions testing software and waiting to see if criminal charges will be filed—and if so, who specifically will be in the DOJ’s criminal crosshairs (DOJ filed a mammoth civil suit in January). The DOJ isn’t the only agency stepping up enforcement in the emissions space, however. This past week the SEC got in the emissions game on the security side, charging Navistar International with misleading investors in connection with their truck engine emissions.

Navistar is a public, Illinois-based large vehicle and engine manufacturing company with over $10 billion in annual revenue and significant sales in the defense community. Its now-embattled ex-CEO is Daniel Ustian abruptly left the company in 2012 after ten years at its helm. On Thursday, March 31, the SEC charged Navistar with misleading investors regarding its compliance with new, stricter EPA engine emissions standards. The SEC charges state that the company—in its 10-K, quarterly filings, and other documents—mislead investors by overstating the company’s progress in complying with emissions standards and by failing to disclose actual concerns and feedback from the SEC. The engine at issue was allegedly under development in 2011-2012, and in that timeframe Navistar repeatedly applied for and never obtained approval from the EPA. At the same time, the public filings and Ustian’s comments indicated that approval and production of the engine were proceeding normally. The SEC announced the charges and the company’s financial settlement at the same time, to the tune of $7.5 million.

The SEC didn’t stop there, and filed a complaint in Federal District Court in Chicago against Ustian, the ex-CEO, as well. He has not settled. The charges against the CEO are another chapter in the government’s oft-mentioned renewed push to charge individual C-level executives in connection with charges against their companies. The SEC is clearly looking at emissions issues and EPA standards compliance in the wake of the Volkswagen disclosures. Charging Navistar and its ex-CEO points to more federal scrutiny of the whole automotive industry—and the executives in charge.