GM to Pay $900M Over Ignition Switch Scandal; Cooper Criticizes Deal
General Motors has agreed to pay $900 million to resolve criminal charges for concealing a defective ignition switch linked to at least 169 deaths, federal prosecutors said Thursday in New York.
The agreement calls for two charges—wire fraud and scheming to conceal information from government regulators—to be dropped after three years if the automaker cooperates fully.
However, U.S. Attorney Preet Bharara did not rule out the possibility employees could still face charges.
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“They let the public down. It’s as simple as that,” Bharara said. “To sum it up, they didn’t tell the truth in the best way that they should have—to the regulators, to the public—about this serious safety issue that risked life and limb.”
Also Thursday, GM announced it that it will spend $575 million to settle the bulk of the civil lawsuits filed over the scandal.
The twin agreements bring to more than $5.3 billion the amount GM has spent on a problem prosecutors say could have been dealt with at a cost of less than a dollar per car. Those expenses include government fines, compensation for victims and the recall and repair of the millions of affected vehicles.
The statement of facts to which the company agreed describes in scathing terms GM’s deceitful and dismissive approach to handling a problem that was evident even before the defective switch went into production in 2002.
The design of the ignition switch was changed by a GM engineer, without any notice, in 2002, even though the supplier said the switch didn’t meet GM’s specifications. That fact was uncovered in April 2013 during an investigation by Marietta attorney Lance Cooper, who was representing Ken and Beth Melton’s lawsuit in the 2010 death of their daughter, Brooke, a nurse. She died on her 29th birthday after her 2005 Chevrolet Cobalt went out of control and rolled off a highway, down a bank and into a creek.
On Thursday, Cooper issued a scathing response to the end of the GM criminal case.
“Today’s settlement announcement provides no consolation to the hundreds of families who were devastated by GM’s decade long coverup of the ignition switch defect,” Cooper said in a news release. “When individuals, through their reckless conduct, cause someone to die, they go to jail. When large corporations, such as GM, through their reckless conduct cause hundreds of people to die, they simply pay a fine, write it off as a tax loss, and move on.”
“Speaking on behalf of the families we represent, we had hoped that justice would be served in the criminal investigation of GM,” Cooper said. “Unfortunately, it’s the same old story—if you have enough power and money you can always buy your way out of truly being held accountable for your misdeeds.”
Cooper’s investigation discovered Brooke Melton’s car’s key was turned off, then later that the ignition switch was defective. The Meltons settled their case in 2013, then tried to give back the $5 million payment a year later when they discovered a GM engineer lied in a deposition saying he did not know about the defect. They refiled their lawsuit in 2014, adding allegations of fraud.
Cooper teamed up with Beasley, Allen, Crow, Methvin, Portis & Miles in Montgomery to deepen the investigation. But the Meltons settled again in March 2015 after more money was added to their deal from the fund controlled by GM’s mediator, Kenneth Feinberg.
Before the Meltons settled their suit, Cooper had expected their lawsuit to be the first ignition defect case to go to trial against GM. He said Wednesday he has now placed that hope on other cases he is investigating.
“We look forward to our first ignition switch trial against GM when a jury will have the opportunity to hold GM fully accountable for its reprehensible conduct,” Cooper said. He did not identify the case, and said he would make no further comments for the moment.
Beasley Allen founder Jere Beasley issued a statement saying GM was “getting off easy” on the criminal charges despite being fined nearly $1 billion. “In this country, we normally put criminals in jail, but corporations pay huge fines and keep on doing business,” he said. “I am afraid the public doesn’t fully realize that GM—a corporate entity—is guilty of a criminal offense, and because of the conduct of GM officers and employees, at least 124 innocent victims were killed. The National Highway Traffic Safety Administration dropped the ball and GM intentionally covered up for a full decade a known safety defect.”
Consumer advocate Clarence Ditlow, executive director of the nonprofit Center for Automotive Safety, also bitterly criticized the settlement.
“GM killed over 100 people by knowingly putting a defective ignition switch into over 1 million vehicles,” Ditlow said. “Today, thanks to its lobbyists, GM officials walk off scot-free while its customers are 6 feet under.”
Bharara said he understands some victims’ families might be disappointed no individuals were arrested, but he added: “We apply the laws as we find them, not the way we wish they might be.” He also said GM was given credit for cooperating with the investigation, including sharing the results of its in-house probe.
With the settlements, GM is taking a big step toward moving past the scandal, which badly damaged its reputation but led to companywide safety reforms.
Later Thursday, GM chief executive Mary Barra appeared before employees in suburban Detroit and again apologized to the victims of crashes caused by the bad switch.
“We didn’t do our job,” she said. “We accept the penalties handed down today, because that’s what it means to be held accountable.”
As part of GM’s deal with prosecutors, an independent monitor will be appointed to review the automaker’s procedures for handling safety defects.
When GM employees, the media and some customers complained about the switch in 2004 and 2005, the company’s engineers left the switch alone, rejecting a cheap and simple improvement that would have significantly reduced the problem, court papers said.
Court papers said even though the dangers became plain in the spring of 2012, the company did not correct its earlier assurance that the switch posed no safety concern. Instead, Bharara wrote, it concealed the defect from regulators and the public “so that the company could buy time to package, present, explain and manage the issue.”
The wire fraud count pertained to the company’s assurances to customers over the Internet in 2012-13 that its used cars were safe.
Last year, GM recalled 2.6 million older small cars worldwide to replace the faulty switches. Those included the Chevrolet Cobalt and Saturn Ion.
The faulty switches can unexpectedly slip out of the “run” position to “off” or accessory. That shuts off the engine and disables power-assisted steering, power brakes and the air bags. Some cars ran off the road or collided with other vehicles.
Last year, the National Highway Traffic Safety Administration slapped GM with a civil fine of $35 million for failing to notify the government of a safety-related defect within five days of learning about it.
Also last year, GM established a fund to compensate victims. Lawyers administering the fund accepted 124 death claims and 275 injury claims. Families of those who died will get at least $1 million. GM has set aside $625 million to compensate people who accept a settlement with the fund.
Texas attorney Bob Hilliard represented 1,385 plaintiffs with death or injury claims who decided not to seek compensation from the fund. On Thursday, GM said it has agreed to spend part of $575 million to settle those lawsuits, which include 45 deaths.
The money also will be used to settle a shareholder lawsuit that said GM’s actions reduced the value of its stock.
Even with the settlements, GM cannot yet close the books on the scandal. It still faces 454 death and injury cases that have yet to be settled. Six cases have been scheduled for trial, including one set to start in January.
Amid the scandal more than a year ago, GM fired 15 employees, including engineers and lawyers, for failing to act to resolve the switch problem.
The recalls led to other changes at GM. Barra appointed a new safety chief who reports directly to her and added 35 product safety investigators. The company changed its product development process to focus more on safety. And it started a program that encourages employees to speak up if they uncover a safety concern.
GM also reviewed a backlog of safety issues in 2014 and ordered a record 84 recalls covering more than 30 million vehicles, including 27 million in the U.S. So far this year, it has issued 33 recalls covering 2.6 million cars and trucks.
The deal with GM comes a year and a half after Toyota agreed to a $1.2 billion penalty from the Justice Department for withholding information about deadly unintended acceleration in its vehicles.
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