NYT: $900 Million Penalty for G.M.'s Deadly Defect Leaves Many Cold

http://www.nytimes.com/2015/09/18/business/gm-to-pay-us-900-million-over-ignition-switch-flaw.html

SEPT. 17, 2015

$900 Million Penalty for G.M.'s Deadly Defect Leaves Many Cold

By DANIELLE IVORY and BILL VLASIC

As the number of deaths linked to defective cars made by General Motors has steadily risen to 124, victims' families have waited for the answer to a burning question: How will federal prosecutors hold the automaker accountable for its decade-long failure to disclose the defect?

On Thursday, they got their answer, and many were disappointed.

In a settlement with prosecutors, no individual employees were charged, and the Justice Department agreed to defer prosecution of the company for three years. If G.M. adheres to the agreement, which includes independent monitoring of its safety practices, the company can have its record wiped clean.

And even though General Motors will pay a $900 million penalty, it was 25 percent less than the record $1.2 billion Toyota agreed to pay last year.

"I don't understand how they can basically buy their way out of it," said Margie Beskau, whose daughter Amy Rademaker was killed in an October 2006 crash in Wisconsin. She added, "They knew what they were doing and they kept doing it."

At a news conference, Preet Bharara, the United States attorney for the Southern District of New York, defended the settlement. "It has been a challenging case, for the agencies, for the prosecutors and for me," Mr. Bharara said. "We've had to think long and hard about the appropriate resolution in this case."

Mr. Bharara said that the victims had been paramount in the minds of the prosecutors on the case.

"I met personally with families who lost loved ones in tragic accidents involving the switch and, I'll tell you, those were among the most searing moments I've ever spent in my six-plus years as United States attorney," he said.

G.M.'s cooperation, he said, was the reason the settlement was reached after only 18 months, rather than after four years or more, as in the Toyota case.

"From the moment the top management came forward to disclose the defect in February of 2014, the company's cooperation and remediation have been fairly extraordinary," Mr. Bharara said, citing G.M.'s creation of a compensation fund for victims of the defect and its dismissal of 15 employees, among other factors.

"Good behavior after the fact does not absolve G.M. or any company of responsibility," Mr. Bharara said, "but companies should be encouraged to act as G.M. did here to help the truth come out faster."

Mr. Bharara cited an internal investigation conducted for G.M. as favorable in determining the penalties paid by the automaker.

The two law firms hired for that inquiry, King & Spalding and Jenner & Block, had previously done legal work for G.M. And court papers show that Anton R. Valukas, the chairman of Jenner & Block, who headed the G.M. investigation, helped represent the automaker in its talks with the Justice Department.

Mr. Valukas declined to be interviewed, and several corporate lawyers said such arrangements are not unusual because an outside law firm that conducts an investigation knows the facts of a case. But Deborah L. Rhode, a professor at Stanford Law School, said the public's interest may suffer when a law firm wears so many different hats.

"It would be nice to know that the law firm doing the internal investigation was truly disinterested and didn't have an interest in subsequent representation" of the same company, Ms. Rhode said.

The overall tone of the news conference was notably more subdued than the bravado that accompanied the Toyota announcement last year. At that news conference, the attorney general at the time, Eric Holder, and Transportation Secretary Anthony Foxx both attended and spoke, calling Toyota's behavior shameful. On Thursday, neither Mr. Holder's successor, Loretta Lynch, nor Mr. Foxx attended.

The complaint filed by prosecutors details what has become a familiar narrative in the G.M. safety crisis -- employees within General Motors were aware going back more than a decade of problems with the ignition switch, which is prone to turning off, cutting the engine and disabling systems like power steering and airbags.

But prosecutors focused their attention to a relatively short period of time -- only about 20 months from the spring of 2012 to February 2014, when G.M. began recalling 2.6 million older cars to fix the switch -- even though the first reports of the problem had been made more than a decade earlier. As awareness of the problem grew inside the company, the automaker's legal department was aggressively fighting back against a mounting wave of litigation, even settling lawsuits.

Mr. Bharara emphasized that individuals could still be charged, but bringing a case against employees faces higher legal hurdles than in some other industries. Two employees in particular were singled out in the complaint as playing a central role in concealing information from regulators, but they were identified only by a vague job description.

"This knowledge extended well above the ranks of investigating engineers to certain supervisors and attorneys at the company -- including G.M.'s safety director and G.M.'s safety attorney," prosecutors said in their statement of facts that accompanied the complaint.

The Justice Department and G.M. declined to comment on the identities of the safety director and safety attorney. But among those dismissed last year were Carmen Benavides, the director of product investigations, and William Kemp, a G.M. lawyer who handled safety matters. Both of their actions as described in Mr. Valukas's internal investigation and in congressional documents match the descriptions in the complaint.

Mr. Kemp did not return a message left at his home and Ms. Benavides did not return an message left at a LinkedIn account matching her name and career description.

Lawmakers who have been persistent critics of G.M. were unpersuaded by the settlement.

"This outcome fails to require adequate and explicit admission of criminal culpability from G.M. and individual criminal actions," said Senators Richard Blumenthal of Connecticut and Edward J. Markey of Massachusetts, both Democrats, in a joint statement. "This outcome is extremely disappointing."

G.M. struck a tone of contrition on Thursday. In a meeting with employees at G.M.'s huge technical center north of Detroit, Mary T. Barra, the chief executive, again apologized.

"Let's pause for a moment and remember that people were hurt and died in our cars," Ms. Barra told about 1,000 workers gathered in an atrium at the company's vehicle engineering center. "That's why we are here."

Ms. Barra had flown back overnight from the Frankfurt Auto Show to attend the town hall, and then take questions from reporters.

Her address to workers highlighted all the improvements in safety practices that G.M. has made since the company first began recalling the defective vehicles.

But she admitted that it will take more than apologies for G.M. -- which went bankrupt in 2009 and needed a $49 billion government bailout to survive -- to restore its reputation in the eyes of consumers.

"We accept the penalties being announced today because they are part of being accountable," she said. "But apologies and accountability do not amount to much if you don't change your behavior."

Her address to employees came on a day when G.M. reached another legal milestone, setting aside $575 million to resolve the cases of about 1,380 people, all represented by Robert C. Hilliard. Mr. Hilliard, a lawyer who is among those leading the class-action cases against the automaker, said that 45 death cases were among those settled. The $575 million also includes the settlement of a shareholder suit filed by the New York State Teachers' Retirement System.

Altogether, the private lawsuit settlements resolve more than half the outstanding private cases against G.M.

In the end, victims said they were unsatisfied by the Justice Department's announcement.

"I don't see how Mary Barra can sleep," said Laura Christian, the birth mother of 16-year-old Amber Rose, who was killed in a July 2005 crash in Maryland. She said the deferred-prosecution agreement was like probation.

"We buried our loved ones because G.M. buried a deadly defect," Ms. Christian said. "And yet today all G.M. has to do is write another check to escape. We can't escape -- every day I am missing a daughter."

Barry Meier contributed reporting.

Fatal Flaws: Crisis in Auto Safety