Austal USA LLC, a major shipbuilder for the U.S. Navy, pled guilty Tuesday to charges of accounting fraud and obstruction of a federal audit. The company’s actions were part of a settlement resolving both criminal and civil investigations. As a subsidiary of Australian company Austal Limited, Austal USA admitted to inflating profits and submitting false financial statements regarding the construction of Navy ships.
Austal USA Pleads Guilty to Fraud : Fraud Charges and Penalties
Austal USA pled guilty to one count of securities fraud and one count of obstruction. The company will pay a $24 million civil penalty to settle related claims brought by the U.S. Securities and Exchange Commission (SEC) and has agreed to an additional $811,259 settlement with the Department of Justice (DOJ) to address violations of the False Claims Act. These violations stemmed from the company knowingly providing faulty valves that did not meet military specifications.
The DOJ initially sought a $73.6 million criminal fine, but Austal USA demonstrated that it was unable to pay the full amount. Consequently, the company will pay $24 million in criminal fines and up to $24 million in restitution to shareholders, which will also cover the SEC penalty.
DOJ and SEC Allegations
The DOJ and SEC accused Austal USA of engaging in a multi-year scheme to fraudulently inflate its profits on littoral combat ships it was building for the Navy. These fast, mission-focused ships are designed to operate in near-shore environments. Austal manipulated its financial reporting by suppressing a key accounting metric called “estimate at completion,” which caused the company’s profitability to be overstated.
