Boeing to Pay $200M After Fraud Accusations

WASHINGTON — Boeing Co. agreed last week to pay $200 million in fines to settle Securities and Exchange Commission allegations that it deceived investors about the safety of the 737 Max airliner after two deadly crashes.

Company executives told investors the airplane complied with Federal Aviation Administration safety regulations even while they still were trying to fix problems with the guidance system, the SEC said.

Safety of the 737 Max was implicated in the October 2018 crash of a Lion Air flight that killed 189 people in the Java Sea and a March 2019 Ethiopian Airlines disaster in which 157 people died.

The FAA responded by grounding the 737 Max for an unprecedented 20 months until Boeing Co. could prove it resolved all safety problems.

While they still were grounded, then-Chief Executive Officer Dennis A. Muilenburg said during investor calls and press conferences that the airplanes were safe.

The controversy centered on the 737 Max’s Maneuvering Characteristics Augmentation System. 

MCAS is an innovation Boeing developed for the 737 Max’s flight control. It was supposed to help guide the plane with less pilot intervention, thereby improving safety.

The problem involved sensors that could give false readings on the airplane’s flight path. If the pilots failed to correct the path promptly, the software could direct the flight control system into a nosedive.

“There are no words to describe the tragic loss of life brought about by these two airplane crashes,” SEC Chairman Gary Gensler said in a statement. “In times of crisis and tragedy, it is especially important that public companies and executives provide full, fair, and truthful disclosures to the markets. The Boeing Company and its former CEO, Dennis Muilenburg, failed in this most basic obligation.”

The SEC mentioned as an example a Nov. 27, 2018, Boeing press release. It selectively chose a few statements from a preliminary investigation of the Lion Air crash that seemed to exonerate Boeing but omitted others.

The preliminary report raised the possibility that pilot error and poor maintenance contributed to the accident. The report also suggested there appeared to be mechanical and design flaws with the aircraft.

Boeing’s press release mentioned the pilot error and maintenance issues but left out the rest of the preliminary report, adding that the 737 Max “is as safe as any airplane that has ever flown the skies.”

Even as the company released the press statement, its engineers were planning a software fix, according to the SEC.

The agency alleged similar evasiveness about the Ethiopian Airlines accident.  

During an April 24, 2019, first-quarter earnings call with investors and analysts, Muilenburg told them “there was no surprise or gap or unknown … that somehow slipped through [the] certification process” for the 737 Max.

He added that Boeing had “gone back and confirmed … that we followed exactly the steps in our design and certification processes that consistently produce safe airplanes.”

Five days later, he repeated the same kind of statements to reporters.

The SEC said Boeing and Muilenburg violated anti-fraud provisions of securities laws.

In addition to the $200 million fine for the company, Muilenburg agreed to pay a $1 million civil penalty. Neither he or the company admitted wrongdoing.

Muilenburg lost his job as chief executive in late 2019 as Boeing did a shake-up of its safety procedures. He was replaced by David L. Calhoun in January 2020.

The $200 million SEC fine comes on top of a $2.5 billion settlement with the Justice Department in January 2021. Federal prosecutors accused two former Boeing employees of fraud and conspiracy for misleading statements to the FAA before the agency certified the 737 Max for airline service.

Boeing said in a statement that the settlement with the SEC “is part of the company’s broader effort to responsibly resolve outstanding legal matters related to the 737 Max accidents in a manner that serves the best interests of our shareholders, employees, and other stakeholders.”

As a result of the 737 Max crashes, the company said it has “made broad and deep changes across our company” to improve safety.

Tom can be reached at [email protected] and @TomRamstack