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The U.S. Securities and Exchange Commission’s yearslong civil court fight with Daniel Ustian has ended with the former Navistar International CEO agreeing to a $500,000 civil penalty and a permanent ban from serving as an officer or director of a public company.
It took four years of civil litigation, including intermittent settlement discussions, for Ustian and SEC attorneys to reach an agreement. Ustian agreed to the settlement three days before he was scheduled for a jury trial on civil accusations that he “knowingly and repeatedly lied to the investing public about the status of Navistar’s efforts to certify an exhaust gas recirculation-only 13-liter engine.”
The court in a May 15 status report said that the ban will be complete once it receives a final brief from the SEC that outlines reasoning for the ban. That brief is set to arrive in July.
“Mr. Ustian’s counsel has now advised the SEC’s counsel that Ustian will agree not to act as an officer or director of a public company, and has proposed a resolution that reflects the agreement,” the status report said.
Ustian, of Naperville, Ill., was CEO and chairman of the manufacturer from the mid-2000s through 2012, according to court documents.
In a March statement, the Chicago regional SEC office announced the settlement and sent to the court the proposed judgment against Ustian, who was also enjoined from violating the anti-fraud provisions of the federal securities laws.
In a 2016 civil complaint, SEC attorneys said that from November 2010 through June 2012, Ustian made 11 separate deceptive statements misleading investors about Navistar’s ability to meet the 0.2g oxides of nitrogen standard while delivering engines with competitive fuel economy and performance. “In conducting his campaign of deception, he violated the anti-fraud and other provisions of the federal securities laws,” SEC said.
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The lawsuit against Ustian was filed in March 2016, the same day that Lisle, Ill.-based Navistar, without admitting guilt, agreed to pay a $7.5 million civil penalty for misleading statements made to investors during Ustian’s tenure about development of a diesel truck engine that could be certified to meet U.S. emission standards using solely in-engine EGR technology. All other vehicle and engine makers went with selective catalytic reduction to comply with the U.S. Environmental Protection Agency regulations, a technology that Navistar eventually adopted.
Ustian’s lead attorney, Sean Berkowitz, of the Chicago law firm of Latham & Watkins LLP, did not immediately respond to a request for comment.
Compounding SEC attorneys’ argument for the lifetime ban was Ustian’s history with the agency. In 2010, he entered into a settled “cease-and-desist proceeding” with SEC in connection with “myriad, massive internal controls deficiencies and material weaknesses throughout Navistar that resulted in the company overstating its pretax income by more than $100 million,” according to court documents.
“The SEC found that Ustian was a cause of deficient internal controls that resulted in violations of the U.S. Exchange Act. To settle the matter, Ustian repaid Navistar more than $1.3 million — the pro rata portion of his bonus corresponding with Navistar’s restatement period,” SEC said.
Court documents said the first Navistar EGR prototype engine could only run in a testing lab. An engineer described the engine as “underpowered” and said some of his colleagues doubted if the engine could properly function in a truck.
The company abandoned its EGR program in 2012. Soon after Ustian left the company, Navistar adopted SCR technology.
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