http://www.nytimes.com/2014/03/20/business/toyota-reaches-1-2-billion-settlement-in-criminal-inquiry.html

MARCH 19, 2014

Toyota Is Fined $1.2 Billion for Concealing Safety Defects

By BILL VLASIC and MATT APUZZO

Eric H. Holder Jr., the United States attorney general, talked in impassioned tones on Wednesday about Toyota's behavior in hiding safety defects from the public, calling it "shameful" and a "blatant disregard" for the law. A $1.2 billion criminal penalty, the largest ever for a carmaker in the United States, was imposed.

Mr. Holder said the department's four-year investigation of Toyota found that the company concealed information about defects from consumers and government officials, putting lives at risk because of faulty parts that caused sudden, unintended acceleration in several of its models.

But Toyota wasn't the only company on everyone's mind.

General Motors is now the subject of a Justice Department inquiry over its failure to recall cars with a defect that is linked to 12 deaths. And while Mr. Holder did not address questions about the G.M. inquiry, he said the Toyota case would be a model for its newly vigilant approach to automotive safety.

"Other car companies should not repeat Toyota's mistake," Mr. Holder said at a news conference in Washington. "A recall may damage a company's reputation, but deceiving your customers makes that damage far more lasting."

In the Toyota settlement, the Justice Department agreed to defer prosecution on one count of wire fraud for three years, provided that it pays the financial penalty and submits to a continuing independent review of its safety processes.

Toyota said in a statement that it had made fundamental changes in its corporate structure and internal safety controls since the government started its investigation four years ago.

"Entering this agreement, while difficult, is a major step toward putting this unfortunate chapter behind us," said Christopher P. Reynolds, chief legal officer of Toyota's North American division.

The agreement comes as the Justice Department is beginning to investigate the failure by General Motors to fix Chevrolet Cobalts and other models equipped with defective ignition switches that can shut off engines and disable air bags.

Last month, G.M. announced it was recalling 1.6 million of the cars. The automaker's chief executive, Mary T. Barra, has repeatedly apologized and vowed to cooperate with investigations by the National Highway Traffic Safety Administration and two congressional committees.

Ms. Barra declined to talk about a possible Justice Department inquiry when asked during a briefing with reporters on Tuesday.

Prosecutors said that Toyota concealed problems related to floor mats and sticky accelerator pedals and made misleading statements to consumers in an effort to defend its brand image.

Toyota recalled more than 10 million vehicles in 2009 and 2010 for problems related to unintended acceleration. The company modified gas pedals and floor mats and made brake-override systems standard on new models.

While regulators have not given an exact number of deaths associated with the defect, the company still faces many wrongful death and personal injury lawsuits.

The company, which also has paid $66 million in civil penalties, said Wednesday that it had made internal safety changes including starting rapid-response teams to investigate potential defects.

"At the time of these recalls, we took full responsibility for any concerns our actions may have caused customers, and we rededicated ourselves to earning their trust," Mr. Reynolds said.

While the $1.2 billion penalty is the biggest ever for a carmaker, it still represents a small fraction of the more than $60 billion that Toyota has in cash reserves.

And although Toyota sales fell in the short term during the recalls, the company has recovered most of the market share it lost in the United States.

Even with its resurgence, Toyota felt pressure internally to reach a deal. There has been a growing sense among executives that a prolonged investigation would ultimately do more damage to the automaker's image in the United States than a settlement, people with knowledge of the company's thinking say.

The hours-long grilling of Akio Toyoda, the chief executive, in Congress in 2010 shocked many Toyota executives, and has served as a constant reminder of the consequences of falling out of public favor in the United States, these people say.

As for federal investigators, people briefed on the Toyota investigation said the F.B.I. used the same techniques applied to inquiries into financial fraud at companies like Enron.

Investigators discovered internal Toyota documents that acknowledged serious problems with its vehicles. They matched those documents with the company's public statements, which played down the problems, according to one federal law enforcement official who spoke on condition of anonymity.

"That's when we knew for sure that this was a criminal fraud case," the official said. "That's what you'd call a smoking gun."

And while authorities would not comment on G.M. specifically, investigators who worked the Toyota case came away with the view that this was a priority industry because, here, corporate fraud could kill people.

Congressional committees and regulators have asked G.M. for company documents that detail how the automaker discovered problems with ignition switches as far back as 2001.

The company has admitted in filings with federal regulators that it had proposed fixes for the problem on at least two occasions, but did not follow through.

Ms. Barra said Tuesday that G.M.'s own investigation had yet to yield answers as to how the problem was allowed to continue.

The internal inquiry is being led by a former United States attorney, Anton R. Valukas, and will take several months.