Caterpillar Guilty Of False Rail Repairs To Lift Revenues
Zacks Investment Research | Dec 10, 2017 08:39PM ET
Per a Wall Street Journal report, a subsidiary of Caterpillar Inc. (NYSE:CAT) has pleaded guilty to cheating customers with needless repairs in order to boost repair revenues. The subsidiary, United Industries LLC, part of Caterpillar's Progress Rail Services unit, has to pay a criminal fine of $5 million and $20 million in restitution.
United Industries’ main role was examining parts of railcars to ascertain whether repairs were required. Per another Wall Street Journal report which came out three years ago, United Industries supervisors had instructed staffers to destroy brake parts with hammers, ruin wheels with chisels, and loosen handles. Employees would improperly remove functioning parts located on the railcars and replace them with new or reconditioned parts, even though the parts being replaced did not need replacement.
Subsequently, employees tossed parts into the Port of Long Beach harbor to avoid the eyes of inspectors. These damaged parts were eventually discovered by Port police divers on the ocean floor. Caterpillar had first disclosed the criminal investigation to shareholders in November 2013. The case has dragged on for years due to the complexity and calculation of fines.
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