General Motors and Deloitte & Touche have agreed to settle a class-action securities lawsuit against them alleging the automaker filed misleading financial reports between 2002 and 2006. The lead plaintiffs in the suit were a pair of funds managed by Germany’s DekaBank. Under the terms of the settlement, which requires court approval, Deloitte will pay $26 million in cash, while GM will pay $277 million.
The plaintiffs alleged that GM improperly accelerated income — primarily credits and rebates from suppliers for volume purchases — that should have been reported over longer periods, and also claimed the carmaker recorded extraordinary items of income as ordinary income. Deloitte was GM’s auditor during the period covered by the suit.
“Deloitte & Touche LLP is pleased that it has been able to resolve the securities class action brought by investors in General Motors Corporation,” the audit firm said in an E-mailed response to inquiries by CFO.com. “Although it has strong defenses to these claims, Deloitte concluded that it was in the best interests of the firm and its clients to settle this matter now rather than face the burden, expense and uncertainty of continued litigation.”
GM acknowledged the settlement in its quarterly report, filed Thursday, and announced it would take a charge of $277 million. “We believe that a portion of our settlement costs are covered by insurance,” the automaker reported, noting that it will record income of approximately $200 million for the third quarter associated with insurance payments for previously reported litigation costs, including this suit.
“Given the current economic climate, especially that that faces the automobile industry in general, a result like this is pretty good for the class,” attorney James Sabella, a partner at Grant & Eisenhofer in New York, told CFO.com. The plaintiffs were jointly represented by Grant & Eisenhofer and the law firm of Labaton Sucharow.