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.
