Boeing to Pay $200M After Fraud Accusations

September 26, 2022 by Tom Ramstack
Boeing to Pay $200M After Fraud Accusations
FILE - Boeing employees work on the 737 MAX on the final assembly line at Boeing's Renton plant, June 15, 2022, in Renton, Wash. The SEC announced Thursday, Sept. 22, 2022, that Boeing Co. will pay $200 million to settle allegations that the company and its former CEO misled investors about the safety of its 737 Max after two of the airliners crashed, killing 346 people. (Ellen M. Banner/The Seattle Times via AP, Pool, File)

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

A+
a-
  • Boeing
  • fraud
  • Securities and Exchange Commission
  • In The News

    Health

    Voting

    Business

    February 16, 2024
    by Dan McCue
    Trump Ordered to Pay $355M for Fraud in New York Civil Trial

    WASHINGTON — Former President Donald Trump must pay a penalty of $355 million for fraudulently overstating his wealth, a penalty... Read More

    WASHINGTON — Former President Donald Trump must pay a penalty of $355 million for fraudulently overstating his wealth, a penalty that could effectively leave him with little, if any, actual cash on hand. The ruling by Manhattan Supreme Court Justice Arthur Engoron also imposes a three-year... Read More

    Potential $50B Southwestern Energy Giant Emerges as Diamondback Seeks to Buy Rival Endeavor

    AP — Diamondback Energy will attempt to buy rival Endeavor Energy Resources to create an energy giant in the Southwestern... Read More

    AP — Diamondback Energy will attempt to buy rival Endeavor Energy Resources to create an energy giant in the Southwestern United States worth more than $50 billion. Growing confidence in an economic recovery, particularly in the U.S., has driven massive deals in the energy sector in... Read More

    Biden Administration Announces $5B Commitment for Research and Development of Computer Chips

    WASHINGTON (AP) — The Biden administration on Friday announced the investment of $5 billion in a newly established public-private consortium... Read More

    WASHINGTON (AP) — The Biden administration on Friday announced the investment of $5 billion in a newly established public-private consortium aimed at supporting research and development in advanced computer chips. The National Semiconductor Technology Center is being funded through the CHIPS and Science Act. That 2022 law... Read More

    January 29, 2024
    by Dan McCue
    Recent Survey Suggests Anti-Wokism Going Against the Grain of Voters

    WASHINGTON — While there are big differences in how Republicans and Democrats view corporate diversity, equity and inclusion initiatives, voters... Read More

    WASHINGTON — While there are big differences in how Republicans and Democrats view corporate diversity, equity and inclusion initiatives, voters of all political stripes take a dim view of government meddling in such programs, a recent survey found. The study, “Navigating DEI,” was conducted and released... Read More

    January 29, 2024
    by Tom Ramstack
    Walmart Sued in Class Action Over Alleged Pricing Deception

    WASHINGTON — Walmart is being sued over allegations it charges higher prices for products at the checkout stands than it... Read More

    WASHINGTON — Walmart is being sued over allegations it charges higher prices for products at the checkout stands than it advertises on its shelves. The consumer class action lawsuits started in Chicago, Illinois, but are spreading, most recently to a court filing last week in Washington,... Read More

    Disney Requests Delay in DeSantis Appointees' Lawsuit, as Worker Describes Distracted District

    ORLANDO, Fla. (AP) — Disney this week requested a second delay in a state court case involving its legal battle with Gov.... Read More

    ORLANDO, Fla. (AP) — Disney this week requested a second delay in a state court case involving its legal battle with Gov. Ron DeSantis' appointees over who controls Walt Disney World's governing district, as the company accused them and the governor's office of stonewalling requests for documents that... Read More

    News From The Well
    scroll top