Yesterday, the SEC announced that it has filed an administrative proceeding against Navistar International Corp. alleging that Navistar misled investors when it "failed to fully disclose the company’s difficulties obtaining Environmental Protection Agency (EPA) certification" of a particular truck engine. The SEC also filed a lawsuit in federal court alleging that the company's former CEO, Daniel C. Ustian, "engaged in a coverup" that misled investors by aiding and abetting the violations by Navistar.

According to the SEC, the EPA repeatedly raised serious concerns with Navistar in 2011 and 2012 about Navistar's applications to certify a truck engine able to meet EPA Clean Air Act standards that took effect in 2010. The SEC alleges that top Navistar officials "knew the company had not succeeded in developing a commercially viable engine that would meet EPA standards," but nonetheless misled investors in various SEC filings, press releases, and other public statements. Andrew J. Ceresney, Director of the SEC’s Division of Enforcement, stated that Navistar failed to tell investors the"whole truth” about its dealings with the EPA.


In its complaint against Ustian, the SEC alleged that even after Navistar began "encountering significant engineering roadblocks in receiving EPA certification ... Ustian engaged in a progressively desperate and fraudulent scheme to deceive the investing

public into believing that EPA certification of a competitive EGR-only engine that met the 0.20 NOx standard was right around the corner." The SEC claims that this cover up was exposed in mid-2012, when the costs and difficulties of development and certification of the truck engine became too great and Navistar announced that it was abandoning the technology. Disclosure of this information caused Navistar’s stock price to plummet, leading to Ustian’s resignation. 


Navistar agreed to settle the SEC's AP by paying a $7.5 million penalty which may, at the SEC's discretion, be returned to Navistar investors via a Fair Fund distribution. The case against Ustian is ongoing in federal court in Illinois.