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GM Hit with Fine for Preventing Its Accountants from Learning about Deadly Ignition Switches

Friday, February 17, 2017By Richard Alexander

Just when you thought GM would be out of the media for a little while, a new story emerges. In January, GM agreed to settle charges relating to how it handled the ignition switch cover-up from an internal accounting standpoint.

The Securities and Exchange Commission (SEC) cares about how companies account for losses and potential losses. That’s because the SEC’s mission is “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” In its role, it often takes action against companies that don’t properly account for loss contingencies.

The Exchange Act requires companies that issue securities, such as stocks, to use internal accounting controls that allow for accurate financial statements. For example, companies must identify future events that might result in a loss. They must then classify the likelihood that each event will occur as “probable,” “reasonably possible,” or “remote.”

Accurate financial statements are critical to the operation of our country’s financial industry. Stockholders and others review financial statements to learn about the financial condition of a company. Agencies rely on financial statements to identify potential issues and to enforce applicable laws.

The SEC’s proceedings against GM focused on whether GM’s internal procedures allowed it to timely identify events that could result in financial losses and to classify and report those events properly.

If you’re a regular reader, you know that many GM employees and even some managers knew about the faulty ignition switch long before any recall was issued. A federal appellate court even recently found that GM couldn’t hide behind bankruptcy protection because it failed to disclose the dangerous switch issue during bankruptcy proceedings.

The SEC also had a problem with the timing of when GM told its accountants about the faulty switches, which were anticipated to cause substantial financial losses to the company. In fact, it appears that the delay lasted about 18 months. That is, GM left its accountants out of the loop, preventing them from identifying and classifying potential losses due to the deadly switches and misleading investors and enforcement agencies.

GM has proposed to settle the claims brought against it by the SEC by paying out $1 million for accounting failures. Of course, as is typical in this type of case, the company denied that it did anything wrong.

Car makers have a duty to act responsibly in manufacturing their products. If you or a loved one was injured due to a defective automobile, such as a GM vehicle with a defective ignition switch, contact the attorneys at Alexander Law Group, LLP at 888.777.1776 for a free case consultation. Car makers who irresponsibly harm others should be held accountable for their actions.

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