BorgWarner Inc. (NYSE: BWA) agreed to pay a penalty of $950,000 to settle the charges filed by the Securities and Exchange Commission (SEC), alleging that the company misstated its financial statements.

BorgWarner is a motor vehicle parts manufacturer based in Auburn Hills, Michigan.

SEC found that BorgWarner failed to report certain asbestos liabilities

The SEC investigated the financial statements submitted by BorgWarner and found that the company failed to report more than $700 million in liabilities associated with future asbestos claims. Its failure occurred from 2012 to 2016.

The Commission also found that BorgWarner did not perform any substantive quantitative analysis, actuarial assessment, or other testing to estimate the asbestos claims despite having historical raw claims data for almost 40 years.

Additionally, the SEC found that the company mistakenly depended on an unproven assumption in concluding that it cannot reasonably estimate its liabilities associated with the asbestos claims.

As a result of the accounting error, the Commission determined that BorgWarner materially misstated its financial statement. It affected several items in its financial statements including a 6% reduction in pre-tax earnings and over 200% increase in asbestos-related liabilities in 2014 and 2015.

Misstating a financial statement is a violation of the reporting, books and records, and internal accounting controls provisions of the federal securities laws.

In a statement, SEC Division of Enforcement Associate Director Carolyn Welshhans said, “Companies cannot claim an inability to reasonably estimate liabilities when the data they need to do so is available. BorgWarner relied on untested assumptions surrounding its asbestos-related liabilities, which ultimately led to its materially misstated financial statements.”

BorgWarner agreed to settle without admitting or denying the allegations of the SEC. In addition to the payment of the $950,000 penalty, the company agreed to cease-and-desist from future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-11 and 13a-13, thereunder.

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