Navistar pays $50M to settle military vehicle pricing fraud allegations

The government said it relied on the fraudulent sales invoices in agreeing to Navistar’s inflated prices.

A government shaming

“We expect those doing business with the government to be truthful and transparent,” said  Brian Boynton, acting assistant attorney general for the Justice Department’s Civil Division. “Today’s settlement demonstrates our commitment to pursue those who knowingly provide false information to government procurement officials for their personal gain.”

Navistar agreed last Thursday to pay the $50 million to settle the allegations without admitting any wrongdoing. The whistleblower, identified as former Navistar government contracts manager Duquoin Burgess, will receive $11 million of the settlement. 

In a press release, the government shamed Navistar for its behavior despite agreeing to allow the company to avoid admitting wrongdoing. 

“The settlement evidences our commitment to go after any contractor who treats America’s dedication to our troops as a get-rich-quick scheme at the expense of the taxpayer and the safety of our military personnel,” said Acting U.S. Attorney Channing D. Phillips for the District of Columbia.

Added Special Agent in Charge Thomas Cannizzo of the Naval Criminal Investigative Service (NCIS) Southeast Field Office: “Fraud is not a victimless crime. 

“It steals money from American taxpayers, damages the integrity of the Department of the Navy procurement process, degrades the readiness of the services by compromising the quality of goods and services used to protect the nation, and squanders more money through the funding of criminal investigations, which could have been avoided simply by individuals doing the right thing.”

Dumping debt

Separately, Navistar is planning to redeem a second round of debt as it comes closer to becoming a TRATON subsidiary.

In a filing with the Securities and Exchange Commission last Thursday, Navistar said it would redeem $225 million in bonds from the Illinois Finance Authority in 2020. The bonds have a conditional redemption date of July 2 this year.

In April, Navistar told holders of $600 million in notes due in 2025 that it would “conditionally” pay them off early — assuming the TRATON merger concludes.

Holders would get $1,071.25 for each $1,000 they own. It’s not exactly the 9.5% interest originally promised, but still a positive return. Navistar could renege in the unlikely event the definitive agreement — under which TRATON is paying $3.7 billion for the 83% of Navistar it did not already own — should fail at the last minute.

The closing will not occur before Navistar reports second-quarter fiscal earnings this month. The company releases its figures but has suspended analyst calls pending the merger.

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TRATON and Navistar reach definitive $3.7B merger deal

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