Subpoenas, Potential Criminal Liability And More: A Round-Up Of Toyota's Troubles

Toyota Recall Parts (AP)

Toyota is not lacking for problems these days: the recalls are a PR and financial nightmare, the lawsuits are piling up and its executives had to spend yesterday being grilled by Congress.

It’s difficult to know where to begin when analysing Toyota’s current state of affairs, but the DealBook Professor gets things off to a good start, looking at the potential impact of subpoenas issued by a Manhattan grand jury and by the SEC.

Both the SEC and grand jury subpoenas are likely focusing on the same disclosure issues, Professor Peter Henning said, which are the adequacy of the company’s disclosure of the financial impact of problems with their vehicles.

He also touches on the very rare occurrence of a criminal investigation in the circumstances of a recall. “Corporate disclosure issues, however, are usually not the subject of a criminal investigation, and the timing of the grand jury subpoena indicates that the federal investigation may have started earlier than the S.E.C.’s inquiry. That might indicate that prosecutors are going in a different direction than a pure securities case,” he wrote.

Prosecutors could be looking into whether disclosures to the National Highway Traffic Safety Administration were full and complete relating to the acceleration and brake problems. The criminal liability, as he noted, would be related to making false or misrepresentative statements to the government, which, under the relevant statute, carries an enhanced penalty if the false statements are related to automobile defects that cause death or injury.

Of course, the related prison terms would only apply if individuals are charged, rather than the company itself.

Whether a criminal investigation is occurring is unclear, and, Henning said, one could not commence unless the Secretary of Transportation had requested it and Manhattan would likely not be the proper jurisdiction for such a criminal investigation anyway.

Henning’s full analysis, which includes additional statutory interpretation, as well as an explanation of the various jurisdictional issues, can be found here and is definitely worth the read.

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