Securities Regulation Daily Navistar out $7.5M for misleading info re: new technology
Thursday, March 31, 2016

Navistar out $7.5M for misleading info re: new technology

By Amy Leisinger, J.D.

The SEC has charged a large-vehicle manufacturer with misleading investors about its development of an advanced technology engine that could meet U.S. emission standards. Separately, in a federal court complaint, the SEC charged the former CEO of Navistar International Corp. with fraud and with aiding and abetting the company’s violations. According to the SEC, Navistar and the officer failed to fully disclose the company’s difficulties obtaining Environmental Protection Agency approval of the engine and misled investors about its development. Without admitting or denying the SEC findings, in addition to a cease-and-desist order, Navistar agreed to pay a $7.5 million penalty to settle the matter; the complaint against the officer remains pending (In the Matter of Navistar International Corp.Release No. 33-10061, March 31, 2016; SEC v. Ustian, March 31, 2016).

“When public companies and top executives discuss important regulatory developments with investors, they must tell the whole truth,” said SEC Enforcement Director Andrew Ceresney.

Misleading disclosures. In early 2011, in an effort to reassure investors about its emissions control strategy, Navistar applied for certification of an engine it knew was not ready for production and sale even if the EPA certified it as in compliance with stricter EPA Clean Air Act standards that took effect in 2010, according to the SEC. The EPA raised serious concerns about Navistar’s applications to certify an engine using exhaust-gas-recirculation technology and repeatedly told Navistar that it would not be able to approve the company’s applications if Navistar did not submit additional information and make changes to the technology. Navistar later abandoned the effort and adopted the selective catalytic reduction technology used by other manufacturers.

The SEC alleged that Navistar officials knew the company had not succeeded in developing a commercially viable engine that would meet emission standards but continued to address investor concerns so as to create an impression that the application process was proceeding in a typical manner. The company and its then-CEO misled investors by failing to fully disclose the serious difficulties in numerous SEC filings and public communications.

By this conduct, the Commission alleges, Navistar violated the antifraud provisions of Securities Act Sections 17(a)(2) and (3) and the reporting provisions of Exchange Act Section 13(a) and its underlying rules. The then-CEO also violated the antifraud and reporting provisions and aided and abetted Navistar’s own violations.

Sanctions. In connection with Navistar’s civil penalty, the SEC seeks permanent injunctive relief and industry bars against the officer, as well as payment of disgorgement and civil penalties.

The release is No. 33-10061.

The case is No. 16-cv-3885.

Attorneys: Eric M. Phillips for the SEC.

Companies: Navistar International Corp.

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