WASHINGTON (CN) – General Motors overstated its income by $122 million in 2004, and made “material misstatements and omissions” in reporting hundreds of millions of dollars in transactions from 2000 to 2004, says the SEC in Federal Court.
The suit attacks statements about GM’s pension plan, a $97 million sale and repurchase of precious metals, a $100 million bonus from a railroad company, and two types of derivative transactions.
At the end of 2001, GM’s pension plans were underfunded by $10 billion, the SEC says. It claims that “in its 2002 Form 10-K filed with the Commission, GM included material misstatements or omissions concerning disclosure with respect to two critical accounting estimates: pension discount rate selection and expected return on pension assets. GM also failed to disclose material information about the timing of its projected cash contributions to its pension plans to avoid variable rate premiums, and the impact such projected contributions might have on its liquidity and capital resources.”
It claims GM “misstated its financial statements in its 2000 Form 10-K by improperly accounting for a $97 million transaction involving the sale and repurchase of precious metals inventory.”
It claims “GM also misstated its financial statements in its Form 10-Q for the period ended September 30, 2001 and in its 2001 Form 10-K by improperly recognizing a $100 million signing bonus it received from a railroad company.”
The SEC claims, “GM improperly accounted for two types of derivatives – a Canadian dollar mirror hedge strategy and ‘normal purchase normal sale’ arrangement of commodities – in its 2004 Form 10-K”.
And it claims GM had inadequate internal controls to prevent all this and kept inaccurate books in the hedge fund transactions.
“By accounting for the derivative pairs separately, rather than as a unit, GM improperly overstated or understated its earnings in each quarter that it used the Canadian dollar mirror hedge strategy,” the complaint states. “In 2004, this improper accounting caused GM’s annual pre-tax income from continuing operations to be materially overstated by $121.7 million, or about 10% of the amount GM originally reported.”