Securities Regulation Daily SEC charges BMW for disclosing inaccurate and misleading retail sales information to bond investors
Friday, September 25, 2020

SEC charges BMW for disclosing inaccurate and misleading retail sales information to bond investors

By Amy Leisinger, J.D.

The automobile company artificially inflated sales to meet internal targets and raise capital, the Commission alleged.

The SEC has charged automaker BMW and two of its U.S. subsidiaries with providing inaccurate and misleading information about the company’s U.S. retail sales while simultaneously raising approximately $18 billion in multiple corporate bond offerings. To settle the matter, the companies agreed to a cease-and-desist order and consented to pay an $18 million penalty (In the Matter of Bayerische Motoren Werke Aktiengesellschaft, BMW of North America, LLC, and BMW US Capital, LLCRelease No. 33-10850, September 24, 2020).

"Through its repeated disclosure failures, BMW misled investors about its U.S. retail sales performance and customer demand for BMW vehicles in the U.S. market while raising capital in the U.S.," said SEC Enforcement Director Stephanie Avakian.

Inaccurate reporting and internal practices. According to the SEC, from 2015 to 2019, BMW inflated its reported retail sales in the U.S., which helped BMW close the gap between its actual sales volume and internal targets. This allowed the company to publicly maintain a leading sales position relative to other premium automotive companies, the Commission stated.

Specifically, the order found that BMW of North America (BMW NA) maintained a reserve of unreported retail vehicle sales, which it called the "bank," to manage reported retail sales in order to meet sales targets without respect to when the sales occurred. Faced with shortfalls, BMW NA used end-of-month practices that improperly increased reported retail sales and created a misleading impression of BMW’s sales performance in the U.S. market, despite internal concerns about the practices, according to the SEC.

The Commission also alleged that the company paid dealers to inaccurately designate vehicles as demonstrator or service loaners so that BMW itself would count them as "sold." BMW NA offered dealers financial incentives, often contacting dealers at the very end of the month to encourage dealers to designate vehicles as demonstrative and loaner vehicles in order to help BMW NA achieve its monthly internal retail sales targets, the SEC stated.

In addition, the Commission alleged that BMW NA improperly adjusted its sales reporting calendar in 2015 and 2017 to meet internal targets. The company failed to adequately implement internal audit recommendations regarding reporting practices, and these practices were not adequately disclosed in connection with the bond offerings, according to the SEC. As such, the information connected with bond offerings provided by BMW’s financing subsidiary to investors and credit rating agencies contained material misstatements and omissions, the Commission alleged.

Sanctions. By this conduct, the SEC alleged, BMW and its subsidiaries violated antifraud provisions of the Securities Act. Without admitting or denying the Commission’s findings, the companies agreed to pay a joint-and-several penalty of $18 million and to cease and desist from future violations.

In determining to accept the settlement offers, the Commission considered the cooperation provided, as well as remedial measures undertaken by the respondents. The Commission’s order also noted that BMW provided substantial cooperation during its investigation, notwithstanding the challenges presented by the global COVID-19 pandemic, including travel restrictions, work-from-home orders, and office closures, which affected the company’s operations and business in Germany and the U.S.

The release is No. 33-10850.

Companies: Bayerische Motoren Werke Aktiengesellschaft; BMW of North America, LLC; BMW US Capital, LLC

MainStory: TopStory Enforcement FraudManipulation GCNNews

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