U.S. government charges Takata over handling of defective air bags

By David Shepardson

WASHINGTON (Reuters) - The U.S. government charged Japan's Takata Corp (T:7312) with criminal wrongdoing on Friday in connection air bag inflator ruptures linked to at least 16 deaths worldwide.

The auto parts supplier was charged with a single felony count of wire fraud. It was expected to plead guilty to the charge as part of a $1 billion deal with the U.S. Justice Department to resolve a government probe into its handling of the air bag safety defect, sources familiar with the matter said.

A federal grand jury separately indicted three former Takata executives for fraud and conspiracy over the defective air bag inflators, which triggered the largest automotive safety recall in U.S. history.

Shinichi Tanaka, Hideo Nakajima and Tsuneo Chikaraishi, longtime Takata executives who left the company in 2015, were indicted on wire fraud and conspiracy charges for allegedly convincing automakers while at the auto supplier to buy "faulty, inferior, non-performing, non-compliant or dangerous inflators" through false reports."

The six-count indictment, unsealed on Friday, says the three Takata executives knew around 2000 that the inflators were not performing to automakers specifications and were failing during testing, but they provided false test reports to automakers. The indictment cited a 2004 email from Nakajima to Tanaka that says he was "manipulating" inflator test data.

The inflators can explode with excessive force, launching metal shrapnel at passengers in cars and trucks. Many of those killed were involved in low-speed crashes that they otherwise may have survived. To date, 11 deaths and least 184 people have been injured in the United States.

"These indictments send a strong message that if company executives knowingly put deadly products on the market, they will held accountable for their actions," said Senator Bill Nelson of Florida.

U.S. Attorney Barbara McQuade in Detroit will hold a press conference to announce a settlement in the case at 1:30 p.m. EST (1830 GMT), her office said in a statement.

Reuters reported on Thursday that Takata was expected to plead guilty to criminal wrongdoing as part of a deal with the Justice Department. The settlement includes a $25 million criminal fine, $125 million in victim compensation and $850 million to compensate automakers who have suffered losses from massive recalls, sources with knowledge of the matter said.

Reuters reported that the Justice Department has asked Ken Feinberg to oversee the compensation funds.

Takata corporate settlement documents were to be released shortly, the sources said. The company's shares rose 16.5 percent in trading in Japan on news of the settlement.

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

Arrest warrants were issued for all three former executives. Tanaka was previously listed as an executive officer at the company and chief director of procurement.

The recalls have affected 19 automakers to date.

Regulators have said recalls would eventually affect about 42 million U.S. vehicles with nearly 70 million Takata air bag inflators, making this the largest U.S. safety ever.

Regulators expect it will take at least another three years to begin all of the recalls; just 12.5 million inflators have been repaired to date.

A spokeswoman for the U.S. Attorney's Office in Detroit said it was not clear where the defendants are or if they have lawyers. They do not currently have a date to appear in court.

The settlement also calls for an independent monitor of the Japanese auto parts manufacturer. It could help Takata win financial backing from an investor to potentially restructure and pay for massive liabilities from the world's biggest auto safety recall.

In 2015, Takata admitted in a separate $70 million settlement with U.S. auto safety regulators that it was aware of a defect in its air bag inflators but did not issue a timely recall.

The settlement is expected to include restitution to some victims and automakers, who have been forced to recall millions of vehicles with the defective inflators. All but one of the 11 U.S. deaths have taken place in Honda Motor Co (T:7267) vehicles. The Japanese automaker and Takata have settled nearly all lawsuits filed in connection with fatal crashes.