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Faced With Fraud Charge, Toyota Settles for $1.2 Billion

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U.S. Department of Justice logoToyota Motor Corporation has reached a $1.2 billion settlement with the United States as part of a “deferred prosecution agreement,” the U.S. Department of Justice announced Wednesday.

In its announcement, the DOJ said it was bringing a criminal wire fraud charge against the carmaker, accusing it of defrauding customers in the fall of 2009 and early 2010 “by issuing misleading statements about safety issues in Toyota and Lexus vehicles.”

However, the DOJ said it will defer prosecution for three years and then seek to dismiss the charge if Toyota honors all terms of the agreement, in which the carmaker admits it misled consumers by covering up and making deceptive statements about two safety issues that caused unintended acceleration and resulted in several fatal car accidents. Tom Gara reports for The Wall Street Journal that the $1.2 billion settlement is “the largest penalty the U.S. government has ever levied on an auto company.”

The safety problems that led to unintended acceleration consisted of either the accelerator pedal getting stuck under a floor mat, or a “sticky pedal,” in which the pedal could become mechanically stuck, Gara writes. Although Toyota told consumers that the acceleration problem had been rectified with a late 2009 recall related to the floor mats, the company took longer to admit to and address the mechanical problem in the accelerator pedals, Gara writes.

Aruna Viswanatha and Ben Klayman write for Reuters that the unintended acceleration problem has been linked to at least five deaths, and that Toyota faces hundreds of private lawsuits related to the matter. U.S. authorities have been investigating the acceleration problems for four years, although the National Highway Traffic Safety Administration first began looking into reports of unintended acceleration in the Lexus ES350 (which is made by Toyota) in 2007, Reuters writes.

Reuters quotes U.S. Attorney Preet Bharara, whose office conducted the Toyota investigation, as saying Toyota is “effectively on probation for three years.” In the DOJ statement, Bharara says:

‘The tens of millions of drivers in America have an absolute right to expect that the companies manufacturing their cars are not lying about serious safety issues; are not slow-walking safety fixes; and are not playing games with their lives. Companies that make inherently dangerous products must be maximally transparent, not two-faced. That is why we have undertaken this landmark enforcement action. And the entire auto industry should take notice.’

Reuters reports that Toyota’s North American legal chief Christopher Reynolds said in a statement, “Entering this agreement, while difficult, is a major step toward putting this unfortunate chapter behind us.”

Reuters writes that the Toyota settlement could serve as a template for similar cases such as General Motors, which, as this blog reported, is under investigation for its handling of an ignition switch problem. Attorney General Eric Holder was quoted at a news conference as saying, “My hope and expectation is that this resolution will serve a model for how to approach future cases involving similarly situated companies.” However, Holder did not mention GM specifically, Reuters notes.


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