‘Fraud can kill,’ judge tells Toyota

A federal judge ratified the landmark deal in the criminal prosecution of Toyota Motor Corp. over safety defects in its vehicles, but not without a tongue-lashing about the “reprehensible picture” of corporate misconduct the automaker displayed.

“Corporate fraud can kill,” Judge William H. Pauley III said Thursday as Christopher P. Reynolds, the chief legal officer of Toyota Motor North America, stood silently before him in a lower Manhattan courtroom.

“I sincerely hope that this is not the end but only a beginning to seek to hold those individuals responsible for making these decisions accountable,” Pauley said.

As part of the deal with prosecutors, Toyota pleaded not guilty to one count of wire fraud but conceded that it misled regulators and consumers about two defects that caused unintended sudden-acceleration incidents -- sticking gas pedals and floor mats trapping the pedals -- and that it avoided recalling vehicles to fix the problems.

Reynolds entered the plea as part of a deal known as a deferred prosecution agreement, which gives Toyota three years to fulfill a number of commitments, including making a $1.2-billion payment to the Justice Department by Tuesday. It is the largest fine ever imposed on an automaker, and the company can’t use it as a tax deduction.


Toyota will work with a federal monitor who will review its safety-related policies and statements for the next three years. If the automaker adheres to the agreement, the government will ask the court to dismiss the wire fraud charge.

In crafting the agreement, the Justice Department decided not to prosecute individual Toyota executives.

“The rules of evidence sometimes do not allow you to use certain kinds of evidence and certain documents against individuals, although they might be admissible against the company itself,” U.S. Atty. Gen. Eric H. Holder Jr. said.

“Although there is an admission that there were individuals who engaged in conduct which provides for a basis to bring a case against the company, they are not charged here,” he said.

Still, the agreement underscores a new era of aggressive crackdowns on automakers accused of covering up safety concerns, with criminal charges as the primary deterrent.

It mirrors efforts at other agencies, such as the Securities and Exchange Commission, where civil defendants are more often required to admit liability in settling cases.

The settlement brings Toyota’s tab for the sudden-acceleration ordeal to about $5 billion in fines, settlements, repair costs and lost sales. To be sure, Toyota can afford to pay: The automaker is expected to announce a profit of nearly $19 billion for its fiscal year that ended March 31.

The giant fine will go into a general asset forfeiture fund at the Justice Department. Those who believe they were hurt by Toyota’s actions could apply for compensation.

The charges stem from Toyota’s actions after a 2009 sudden-acceleration crash in which an off-duty California Highway Patrol officer and his family were killed in a runaway Lexus ES outside San Diego.

That crash is thought to have been caused by a floor mat jamming the gas pedal in the open position. But investigators said the car was too badly damaged to be sure.

“Rather than promptly disclosing and correcting safety issues about which they were aware, Toyota made misleading public statements to consumers and gave inaccurate facts to members of Congress,” Holder said.

In court, Toyota lawyer Reynolds replied, “I do so understand, your honor,” and “You are indeed correct, your honor,” when asked if he accepted the deal and its statement of facts, which offered a damning view of Toyota’s handling of the problem, including its resistance to vehicle recalls in a bid to save money.

Reynolds would not speak to reporters after the brief hearing ended. A Toyota official referred the media to Reynolds’ statement Wednesday, which called the agreement “a major step toward putting this unfortunate chapter behind us.”

Safety advocates praised the agreement because it employs two threats they have long advocated to regulate automaker behavior -- the prospects of unlimited civil penalties and unlimited criminal penalties.

“It is a game changer,” said Clarence Ditlow, executive director for the Center for Auto Safety.

The fine is close to 35 times the maximum penalty that the National Highway Traffic Safety Administration can levy on an automaker, Ditlow noted.


Susman reported from New York; Hirsch from Los Angeles.