Accusations that Delphi Corp. and its auditor, Deloitte & Touche, made deals with third-party vendors to hide the company's financial problems have finally been resolved. The U.S. auto parts maker, now in Chapter 11 bankruptcy proceedings, recently announced that an agreement to settle claims against its former accounting firm has been reached. As part of the settlement, Deloitte & Touche will pay $38.25 million in cash to remove all claims asserted against it in the class action suit.
In a statement previously released to the media, Deloitte and Touche spokeswoman Deborah Harrington said the company had a strong legal case, but "concluded that it was in the best interests of the firm to settle this matter now rather than face the burden, expense and uncertainty of continued litigation."
The agreement requires approval by U.S. District Judge Gerald Rosen, and completes a $325 million settlement of investor claims over the accounting issue, says a representative of the law firms of Grant & Eisenhofer P.A., Bernstein Litowitz Berger & Grossmann LLP, Schiffrin Barroway Topaz & Kessler, LLP, and Nix, Patterson & Roach, LLP, who are court-appointed co-lead counsel for the lead plaintiffs in this case. Delphi has agreed to pay approximately $205 million, with the company's insurers and banks paying the rest.
According to the suit, which was initially brought against Delphi by the Teachers' Retirement System of Oklahoma and the Public Employees' Retirement System of Mississipi, company executives told workers to violate accounting rules over recognizing revenue and expenses between 1999 and 2001. The company allegedly entered a number of deals, transferring assets to third parties in exchange for hundreds of millions of dollars, while at the same time agreeing to eventually buy back the same assets. It has been reported that Delphi also concealed a $237 million transaction in 2000 with GM involving warranty costs.
Delphi spun off from Genereal Motors Corp. in 1999. The company has struggled, citing high wage and benefit costs, as well as lower production on key models at GM and high raw material prices, as the reason behind recent net losses. In March, the company stated that accounting irregularities had led to the need for a $200-plus million restatement and a multitude of corporate changes, which will include the departure of its chief financial officer.
Media representatives for Delphi were not available for comment at the time this article was published.
In November, the U.S. Justice Department said it had decided not to file criminal charges against nine former Delphi officials involving allegations of accounting fraud. And on Dec. 7, a federal bankruptcy judge gave Delphi permission to start soliciting votes for its plan to exit Chapter 11 bankruptcy protection.
The plan would eliminate 27,000 of 33,000 union jobs and would sell or close 21 factories in the U.S. and Mexico. The hedge fund Appaloosa Management LP and five other investors would inject up to $2.55 billion into Delphi in exchange for shares in the new company. A court hearing to review the exit plan is expected to occur early in the new year.