The commercial truck and engine manufacturer will pay $7.5 million to settle allegations by the U.S. Securities and Exchange Commission it misled investors about the development of an advanced technology engine that would meet U.S. emission standards.
The U.S. Securities and Exchange Commission (SEC) is accusing Navistar International Corp. and its former chief executive of misleading investors about the development of an advanced technology truck engine that could be certified to meet United States emission standards.
The SEC said in a statement the Lisle, Illinois-based engine manufacturer will pay $7.5 million to settle the charges, but that Navistar did not admit any wrongdoing.
“We believe that it was time to put this matter behind us and that this settlement was in the best interests of Navistar and its stockholders,” said Lyndi McMillan, a spokeswoman for Navistar.
The agency separately charged former Navistar CEO Daniel C. Ustian with misleading investors and with aiding and abetting violations by the company in a complaint filed in federal court in the Northern District of Illinois.
According to the SEC, Navistar and Ustian failed to fully disclose the company’s difficulties obtaining Environmental Protection Agency (EPA) certification of a truck engine due to stricter EPA Clean Air Act standards that took effect in 2010.
The company and former CEO are also alleged to have repeatedly misled investors about Navistar’s development of the engine, which used exhaust-gas-recirculation (EGR) technology. Navistar later abandoned the effort and adopted the selective catalytic reduction (SCR) technology used by its competitors, the SEC said.
“When public companies and top executives discuss important regulatory developments with investors, they must tell the whole truth,” Andrew J. Ceresney, director of the SEC’s Division of Enforcement said. “Here, we allege that Navistar and its former CEO misled investors about their dealings with the EPA and the likely approval of its new emissions technology.”
According to the SEC’s order instituting a settled administrative proceeding against Navistar, the company in early 2011 applied for EPA certification of an engine it knew was not ready for production and sale in an effort to reassure investors about its emissions control strategy. The EPA did not approve the application and by summer 2011, Navistar had decided not to pursue it further.
Then in late 2011, Navistar began preparing another EPA application and met with EPA staff, who told the company its engine meet the certification requirements. Four days later, Navistar filed its 2011 annual 10-K report, in which it said the company still planned to apply to have the EPA certify the engine and that it believed the engine met EPA’s certification requirements.
When Navistar submitted a new application in early 2012, EPA staff raised “several serious concerns” that would need to be resolved before it could approve the application. Navistar in a press release and March 2012 filings characterized the new application as a “milestone.” In a conference call with analysts and investors, Ustian indicated the certification was proceeding in a typical timeframe and that Navistar could begin production on the engine in June 2012.
In May 2012, however, Navistar withdrew its January 2012 application and submitted a third application that incorporated changes to lower emissions at the expense of fuel economy and other engine performance. EPA staff again told Navistar in a June 4, 2012 meeting it had serious concerns about the May application and informed the company in writing on June 5 that the engine was “unlikely” to be certified as currently designed.
The SEC alleged that despite this, “Navistar’s June 2012 quarterly filing and conference call suggested that Navistar was unaware of any concerns by the EPA regarding the May 2012 application – one of several misstatements in the filing and call regarding the application.”
Navistar in July 2012 announced it was withdrawing its application and would begin work on an engine using SCR technology.
“We allege that in 2011 and 2012, the EPA repeatedly raised serious concerns with Navistar about its applications to certify an engine using EGR technology and that top Navistar officials knew the company had not succeeded in developing a commercially viable engine that would meet EPA standards,” added SEC Chicago Regional Office Director David Glockner. “Navistar and its then-CEO misled investors about these difficulties in numerous SEC filings, press releases, and public conference calls, and today we seek to hold them accountable for that misconduct.”
The SEC’s investigation was conducted by Anne Graber Blazek, Amy Flaherty Hartman, Tim Stockwell, Will Saylor and Ann Tushaus, and was supervised by Robert J. Burson. Eric Phillips and Jonathan Polish will lead the SEC’s litigation against Ustian.
SEC accuses Navistar of misleading investors
