Fiat Chrysler Shares Slide On Reports Of SEC Securities Fraud Probe

Fiat Chrysler is under investigation by the U.S. Justice Department for fraud, according to people familiar with the matter. As Bloomberg reports, prosecutors are scrutinizing whether the carmaker violated U.S. securities laws, they said. The inquiry is in early stages, according to two people, who asked not to be identified because the investigation is confidential and declined to specify what conduct is being investigated.

A civil lawsuit against Fiat Chrysler may provide clues about what prosecutors are looking at.

 A Chicago-area dealer alleges the company inflated its U.S. car sales by paying dealers to report selling more vehicles than they actually did.

Fiat Chrysler shares are sliding on the news...

A criminal investigation could deliver a blow to the automaker, which has posted record vehicle sales since Fiat acquired full control of Chrysler in 2014 through a government-backed bailout that brought the maker of Jeep and Dodge brands out of bankruptcy in 2009. In December, Fiat Chrysler said it had the best month of U.S. sales in the company’s 90-year history with 217,527 vehicles sold -- recording its 69th consecutive month of year-over-year sales gains.

That performance was challenged in a private lawsuit filed in January by dealerships in Illinois and Florida that alleged the sales were padded through a scheme by which dealers -- sometimes unbeknownst to their owners -- were paid to create false New Vehicle Delivery Reports. Similar claims were made in a 2015 lawsuit filed by a dealer of Fiat Chrysler-owned Maseratis.

 

Fiat Chrysler, in a Jan. 14 regulatory filing, said an internal investigation concluded the padding allegations were baseless and that the lawsuit was "nothing more than the product of two disgruntled dealers."

 

In the sales-padding cases, a federal judge in Chicago is considering Fiat Chrysler’s request to dismiss one of the lawsuits while a judge in Brooklyn is deciding whether to merge two other cases.

 

Fiat Chrysler isn’t the only carmaker accused of boosting sales numbers by getting dealers to inflate their figures. Similar claims have also been made against Bayerische Motoren Werke AG, also known as BMW, for paying its dealers as much as $1,750 a vehicle in December to put new models in their service fleets, the cars owners use when their vehicles are being worked on. Dealers booked the sales immediately, and the deliveries helped the company hit its target, people familiar with the practice told Bloomberg News in February.

And dare we suggest that if Fiat Chrysler was doing it (and its sales numbers did not appear outlying relative to its peers), then perhaps, just perhaps, every other car-maker is playing similar tricks.